Strezsak v. Ardelyx Inc.

Opinion

1 2 3 UNITED STATES DISTRICT COURT 4 NORTHERN DISTRICT OF CALIFORNIA 5 6 STEVEN STREZSAK, et al., Case No. 21-cv-05868-HSG

7 Plaintiffs, ORDER GRANTING MOTION TO DISMISS 8 v. Re: Dkt. No. 114 9 ARDELYX INC., et al., 10 Defendants.

11 12 Pending before the Court is a motion to dismiss Lead Plaintiff’s putative securities class 13 action filed by Defendants Ardelyx Inc., Mike Raab, Justin Renz, and David Rosenbaum 14 (“Defendants”). Dkt. No. 114. The Court finds the matter appropriate for disposition without oral 15 argument and the matter is deemed submitted. See Civil L.R. 7-1(b). For the reasons below, the 16 Court GRANTS the motion to dismiss without leave to amend. 17 I. BACKGROUND 18 A. Factual Background 19 Defendant Ardelyx is a biopharmaceutical company that began developing tenapanor 20 around 2009 as a treatment for irritable bowel syndrome. Dkt. No. 113 ¶ 26 (Third Amended 21 Complaint (“TAC”)). Several years later, Ardelyx pivoted to seeking FDA approval of tenapanor 22 for the treatment of hyperphosphatemia, a condition resulting from high levels of phosphate in the 23 blood. Id. ¶ 27. 24 Ardelyx conducted three clinical trials of tenapanor as a treatment for hyperphosphatemia 25 (i.e., excess serum phosphates) in patients with chronic kidney disease (“CKD”) on dialysis using 26 a “surrogate” endpoint – the level of serum phosphates measured in trial participants that could be 27 attributed to the use of tenapanor – rather than a particular clinical outcome (e.g., reduced 1 In November 2017, the FDA provided Ardelyx with feedback on the protocol and 2 statistical plan analysis for Ardelyx’s upcoming second study. Id. ¶ 36. It advised Ardelyx in a 3 letter that “[i]f the size of the effect of tenapanor on serum phosphorous [was] significantly 4 smaller than the size of the effect of currently approved phosphate binders,” Ardelyx would “need 5 to address the clinical relevance of the effect size of [tenapanor] on serum phosphorus.” Id. In 6 response to Ardelyx’s request for feedback concerning whether the results of its third study to be 7 conducted in 2019 could support additional labeling claims, the FDA reiterated its previous advice 8 in a December 2018 letter, stating that “[a]ssuming the trial is well-conducted and the size of the 9 treatment effect is clinically relevant, we agree that the results could be described in labeling.” 10 Id. ¶ 37. 11 In March 2020, after the conclusion of the tenapanor clinical trials, senior Ardelyx officials 12 attended a meeting with FDA personnel regarding the forthcoming tenapanor new drug application 13 (NDA) (“March 2020 Meeting”). Id. ¶ 41. The FDA indicated that Ardelyx’s NDA should 14 address the clinical relevance of the magnitude of the treatment effect of tenapanor on serum 15 phosphorus shown in the clinical trials because “while it had accepted serum phosphorus as a 16 surrogate endpoint and basis for approval for products intended to treat hyperphosphatemia . . . a 17 treatment effect of any magnitude is not considered sufficient to support approval.” Id. ¶ 44. The 18 FDA also noted that “it [was] interested in evidence supporting the conclusion that the magnitude 19 of the treatment effect [of tenapanor was] clinically relevant, as opposed to ‘expert opinion.’” Id. 20 ¶¶ 44, 47. Plaintiff alleges that at least one Ardelyx official who attended the meeting interpreted 21 the FDA’s comments as indicating that the FDA would reject the NDA in the absence of data 22 demonstrating that the smaller reduction in serum phosphorus achieved in the tenapanor trials 23 benefited patients. Id. ¶ 48. 24 The results of the three clinical trials ultimtaely showed that tenapanor was less effective at 25 reducing serum phosphorous than existing treatments. Id. ¶ 38. Plaintiff alleges that Defendants 26 therefore falsely portrayed their interactions with the FDA as positive and approval of the 27 tenapanor NDA as all but assured. See id. ¶¶ 55, 59, 64, 67, 69, 72, 74, 76, 78, 81, 83. For 1 data supporting the soon-to-be submitted tenapanor NDA as “strong” and “robust.” Id. ¶¶ 55, 61. 2 In November 2020, Defendant Rosenbaum stated at an investor conference that the tenapanor 3 Phase 3 trials showed “that if you dose tenapanor [alone], you get a significant and clinically 4 relevant phosphate lowering.” Id. ¶¶ 66–68. During the same presentation, Defendants further 5 assured investors that Ardelyx’s “interactions [so] far with the [FDA] ha[d] gone exceedingly 6 well.” Id. ¶ 69. 7 On July 19, 2021, Ardelyx disclosed that the FDA had “identified deficiencies” in the 8 NDA that precluded the application from moving forward. Id. ¶¶ 85–87. Ardelyx shares fell from 9 their July 19 closing price of $7.70 per share to a July 20 closing price of only $2.01 per share, 10 representing “a one-day drop of nearly 74%.” Id. ¶ 87. 11 Plaintiff brings this putative class action on behalf of individuals who purchased or 12 otherwise acquired Ardelyx securities between May 7, 2020 and July 19, 2021, inclusive (“Class 13 Period”), and who were damaged as a result of Defendants’ violations of the Exchange Act 14 (“Class”). Id. ¶ 1. 15 B. Procedural Background 16 On March 18, 2024, the Court dismissed the Second Amended Complaint (Dkt. No. 97) on 17 the ground that Plaintiff had not adequately alleged that Defendants misled investors about the 18 tenapanor application. Dkt. No. 110 (“SAC Order”). Specifically, the Court held that Plaintiff did 19 not sufficiently allege falsity under the PSLRA because he failed to allege that the FDA’s 20 statements convinced Defendants that the tenapanor review process was not actually proceeding in 21 an ordinary manner, that the clinical data was not robust or clinically relevant, and that approval 22 was thus in jeopardy. SAC Order at 9. 23 On April 14, 2024, Plaintiff filed the TAC (Dkt No. 113). Defendants moved to dismiss. 24 Dkt. No. 114. 25 II. LEGAL STANDARD 26 C. Federal Rule of Civil Procedure 12(b)(6) 27 Federal Rule of Civil Procedure 8(a) requires that a complaint contain “a short and plain 1 defendant may move to dismiss a complaint for failing to state a claim upon which relief can be 2 granted under Federal Rule of Civil Procedure 12(b)(6). “Dismissal under Rule 12(b)(6) is 3 appropriate only where the complaint lacks a cognizable legal theory or sufficient facts to support 4 a cognizable legal theory.” Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th 5 Cir. 2008). To survive a Rule 12(b)(6) motion, a plaintiff must plead “enough facts to state a 6 claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). 7 A claim is facially plausible when a plaintiff pleads “factual content that allows the court to draw 8 the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 9 556 U.S. 662, 678 (2009). In reviewing the plausibility of a complaint, courts “accept factual 10 allegations in the complaint as true and construe the pleadings in the light most favorable to the 11 nonmoving party.” Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 12 2008). Nonetheless, Courts do not “accept as true allegations that are merely conclusory, 13 unwarranted deductions of fact, or unreasonable inferences.” In re Gilead Scis. Secs. Litig., 536 14 F.3d 1049, 1055 (9th Cir. 2008). 15 D. Heightened Pleading Standard 16 Section 10(b) of the Securities Exchange Act of 1934 provides that it is unlawful “[t]o use 17 or employ, in connection with the purchase or sale of any security registered on a national 18 securities exchange or any security not so registered . . . any manipulative or deceptive device or 19 contrivance . . . .” 15 U.S.C. § 78j(b). Under this section, the SEC promulgated Rule 10b-5, 20 which makes it unlawful, among other things, “[t]o make any untrue statement of a material fact or 21 to omit to state a material fact necessary in order to make the statements made, in the light of the 22 circumstances under which they were made, not misleading.” 17 C.F.R. § 240.10b-5(b). To 23 prevail on a claim for violations of either Section 10(b) or Rule 10b-5, a plaintiff must prove six 24 elements: “(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a 25 connection between the misrepresentation or omission and the purchase or sale of a security; (4) 26 reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.” 27 Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 157 (2008). At the 1 meet the requirements of Federal Rule of Civil Procedure 8, but also satisfy the heightened 2 pleading requirements of both Federal Rule of Civil Procedure 9(b) and the Private Securities 3 Litigation Reform Act (“PSLRA”). In re Rigel Pharm., Inc. Sec. Litig., 697 F.3d 869, 876 (9th 4 Cir. 2012). Under Rule 9(b), claims alleging fraud are subject to a heightened pleading 5 requirement, which requires that a party “state with particularity the circumstances constituting 6 fraud or mistake.” Fed. R. Civ. P. 9(b). Additionally, all private securities fraud complaints are 7 subject to the “more exacting pleading requirements” of the PSLRA, which require that the 8 complaint plead with particularity both falsity and scienter. Zucco Partners, LLC v. Digimarc 9 Corp., 552 F.3d 981, 990 (9th Cir. 2009), as amended (Feb. 10, 2009). 10 III. REQUEST FOR JUDICIAL NOTICE 11 A. Incorporation by Reference 12 In the Ninth Circuit, incorporation by reference is a doctrine that “treats certain documents 13 as though they are part of the complaint itself.” Khoja v. Orexigen Therapeutics, 899 F.3d 988, 14 1002 (9th Cir. 2018). A document may be incorporated by reference into a complaint “if the 15 plaintiff refers extensively to the document or the document forms the basis of the plaintiff’s 16 claim.” United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). “Once a document is deemed 17 incorporated by reference, the entire document is assumed to be true for purposes of a motion to 18 dismiss, and both parties—and the Court—are free to refer to any of its contents.” In re NVIDIA 19 Corp. Sec. Litig., 768 F.3d 1046, 1058 n.10 (9th Cir. 2014) (internal quotation marks and citation 20 omitted). Although the truth of an incorporated document may not be considered solely to dispute 21 well-pled facts, the Court need not accept as true conclusory allegations that are contradicted by 22 documents referenced in the complaint. See In re Eventbrite, Inc. Securities Litigation, 2020 WL 23 2042078, at *7 (N.D. Cal. Apr. 28, 2020). 24 Defendants request that the Court incorporate Exhibits 1–4, 6, 10, and 12 into the TAC. 25 The Court previously incorporated by reference into the SAC the documents now marked as 26 Exhibits 1 through 4, 6, 10, and 12. SAC Order at 5. Plaintiff refers to and relies upon these same 27 exhibits for the same purposes in the TAC. See, e.g., TAC ¶¶ 51–53, 57–58, 62–63, 66–70, 71– 1 Plaintiff’s claims or are referred to extensively in the TAC. United States v. Ritchie, 342 F.3d 2 903, 908 (9th Cir. 2003). The Court grants the request to incorporate these documents by 3 reference. 4 B. Judicial Notice 5 Under Federal Rule of Evidence 201, a court may take judicial notice of a fact “not subject 6 to reasonable dispute because it . . . can be accurately and readily determined from sources whose 7 accuracy cannot reasonably be questioned.” Fed. R. Evid. 201(b)(2). Accordingly, a court may 8 take “judicial notice of matters of public record,” but “cannot take judicial notice of disputed facts 9 contained in such public records.” Khoja, 899 F.3d at 999 (citation and quotations omitted). The 10 Ninth Circuit has clarified that if a court takes judicial notice of a document, it must specify what 11 facts it judicially noticed from the document. Id. at 999. 12 The Court has already taken judicial notice of the documents now marked as Exhibits 1–10 13 and 12. SAC Order at 5–7. The Court continues to take judicial notice of these documents. 14 Defendants additionally request that the Court take judicial notice of two new exhibits. 15 Defendants first request the Court take notice of Exhibit 11, a quarterly financial report on Form 16 10-Q filed with the SEC. Ardelyx publicly filed this document with the SEC and it is available to 17 the public through the SEC’s website. These documents are not subject to reasonable dispute, and 18 the “accuracy” of these publicly filed SEC documents “cannot reasonably be questioned.” 19 Waterford Twp. Police v. Mattel, Inc., 321 F. Supp. 3d 1133, 1143 (C.D. Cal. 2018); Dreiling v. 20 Am. Exp. Co., 458 F.3d 942, 946 n.2 (9th Cir. 2006) (noting that SEC filings are subject to judicial 21 notice). Second, Defendants request that the Court take judicial notice of Exhibit 13, which 22 depicts Ardelyx’s historical stock price during the Class Period. Courts routinely take judicial 23 notice of daily stock prices from credible sources, including Yahoo! Finance. See, e.g., In re 24 Nvidia Corp. Sec. Litig., 2010 WL 4117561, at *2, n. 3 (N.D. Cal. Oct. 19, 2010) (taking judicial 25 notice of daily closing prices as reported by Yahoo! Finance); Siemers v. Wells Fargo & Co., 2007 26 WL 1456047, at *2 (N.D. Cal. May 17, 2007) (taking judicial notice of Yahoo! Finance for 27 company stock price) 1 the purpose of considering what was disclosed to the market. In doing so, the Court does not 2 assume the truth of any of the facts asserted. Wochos v. Tesla, Inc., 2018 WL 4076437, at *2 3 (N.D. Cal. Aug. 27, 2018. 4 IV. DISCUSSION 5 A. Section 10(b) and Rule 10b-5 6 Defendants contend that the statements challenged in the SAC are not materially false or 7 misleading. “Falsity is alleged when a plaintiff points to [the] defendant’s statements that directly 8 contradict what the defendant knew at that time.” Khoja, 899 at 1008. “In setting forth the 9 reasons why they contend that each challenged statement is misleading, securities plaintiffs may 10 rely either on an affirmative misrepresentation theory or an omission theory.” Wochos, 985 F.3d 11 at 1188 (citing 17 C.F.R. § 240.10b–5(b)). “Under Rule 10b–5, an affirmative misrepresentation 12 is an ‘untrue statement of a material fact.’” Id. “A statement is misleading if it would give a 13 reasonable investor the impression of a state of affairs that differs in a material way from the one 14 that actually exists.” Retail Wholesale & Dep’t Store Union Local 338 Ret. Fund v. Hewlett- 15 Packard Co., 845 F.3d 1268, 1275 (9th Cir. 2017) (quotations and alterations omitted). “To be 16 misleading, a statement must be ‘capable of objective verification.’” Id. (internal citation 17 removed). However, even “general statements of optimism, when taken in context,” may be 18 misleading “when those statements address specific aspects of a company’s operation that the 19 speaker knows to be performing poorly.” In re Quality Sys., Inc. Sec. Litig., 865 F.3d 1130, 1143 20 (9th Cir. 2017). 21 “Even if a statement is not false, it may be misleading if it omits material information.” 22 Khoja, 899 F.3d at 1008–09. “An omission is material when there is a substantial likelihood that 23 the disclosure of the omitted fact would have been viewed by the reasonable investor as having 24 significantly altered the total mix of information available.” Irving Firemen’s Relief & Ret. Fund 25 v. Uber Tech., 398 F. Supp. 3d 549, 555–56 (N.D. Cal. 2019) (citation omitted). 26 a. Previously Alleged Statements 27 With the exception of two new statements addressed further below, the TAC challenges the 1 Amended Complaint now adequately pleads falsity as to these previously alleged statements, 2 pointing to three new categories of allegations that support his theory of falsity. 3 First, Plaintiff alleges that “over a period of several years,” the FDA “made clear to 4 Ardelyx that approval of the tenapanor [NDA] depended on showing either a treatment effect for 5 tenapanor comparable to existing phosphate binder therapies or evidence that tenapanor’s smaller 6 treatment effect was clinically relevant.” Opp. at 11 (citing TAC ¶ 35–37, 41–47; Dkt No. 113-1 7 at 11.) Plaintiff also points to the November 2017 FDA letter, the December 2018 FDA letter, and 8 the discussions during the March 2020 FDA meeting, all of which purportedly further demonstrate 9 that the FDA suggested that approval would be difficult to reach given the results of the clinical 10 trials. However, these supposedly new allegations were included in the prior complaint or were 11 contained in documents that the Court incorporated into the SAC by reference. See SAC ¶ 44 12 (citing November 2017 FDA letter), id. ¶ 45 (citing December 2018 FDA letter), id. ¶¶ 7–10, 38, 13 40–42, 46–47 (discussing March 2020 FDA meeting), see also SAC Order at 5 (incorporating by 14 reference FDA briefing document). Because Plaintiff fails to support this theory with newly 15 alleged facts, the Court’s previous holding remains undisturbed. Defendants’ “years-long iterative 16 dialogue with the FDA” did not render the opinion statements at issue false or misleading. CAC 17 Order at 12. 18 Second, Plaintiff points to allegations that the trials demonstrated a treatment effect only 19 one-third to one-half that of existing therapies. Dkt No. 116 at 12 (“Opp.”) (citing TAC ¶¶ 38, 20 42). Id. Plaintiff argues that these facts give rise to the inference that Defendants possessed trial 21 data that they knew would not be sufficient for FDA approval. Id. Again, the previous complaint 22 referenced these allegations and the Court incorporated by reference documents that refer to this 23 information. See SAC ¶¶ 59, 67, 73, 79, 84; see also SAC Order at 5 (incorporating by reference 24 FDA briefing document). Because Plaintiff fails to support this theory with newly alleged facts, 25 the Court again does not depart from its prior holding. 26 Third, Plaintiff points to the reaction of an unidentified “Ardelyx official attending the 27 March 2020” FDA meeting. This official allegedly interpreted the FDA’s guidance at the meeting 1 Opp. at 12–13. Under the PSLRA, a complaint may rely on confidential witnesses in two 2 situations. Where a complaint relies on both confidential witnesses and other factual information, 3 such as documentary evidence, plaintiffs “‘need not name their sources as long as the latter facts 4 provide an adequate basis for believing that the defendants' statements were false.’” Zucco 5 Partners, 552 F.3d at 995 (9th Cir. 2009) (internal citations and quotations removed). “Where as 6 here, however, such additional evidence is absent, confidential witness statements may only be 7 relied upon where the confidential witnesses are described with sufficient particularity to support 8 the probability that a person in the position occupied by the source would possess the information 9 alleged.” Id. (internal citations and quotations removed). Details such as the individual’s job title, 10 role, employment information, or any other information that might “make apparent [their] position 11 within the defendant corporation” may suffice. Id. at 995–96. Plaintiff alleges none of these basic 12 details that would allow the Court to infer any degree of reliability or personal knowledge as to 13 this “official.” See Browning v. Amyris, Inc., 2014 WL 1285175, at *18 (N.D. Cal. Mar. 24, 2014 14 (rejecting reliance on a confidential witness the complaint described as a “senior scientist” because 15 the complaint had not alleged when the person worked at the company, nor what the confidential 16 witness’s specific job responsibilities were, nor “who the [confidential witness] works with and 17 what sources of information are available to him.”) Because Plaintiff “fails to allege with 18 particularity facts supporting its assumptions that the confidential witnesses were in a position to 19 be personally knowledgeable of the information alleged,” the allegations relating to the 20 anonymous Ardelyx official do not support a finding that Plaintiff has adequately plead falsity. 21 Zucco Partners, LLC, 552 F.3d at 996.1 22 b. Newly Alleged Statements 23 Plaintiff alleges two new statements in the TAC from Ardelyx’s risk disclosures. Plaintiff 24 first challenges the following disclosure in Ardelyx’s March 2021 annual report: 25

26 1 Plaintiff also argues that statements relating to “clinical relevance” constitute statements of fact rather than opinion, requiring a different analysis of falsity. The Court does not depart from its 27 previous holding that the statement qualified as an opinion that was insufficiently alleged to be 1 “The FDA may not grant approval on a timely basis, or at all. Even if we believe a clinical trial has demonstrated safety and efficacy of one 2 of our drug candidates for the proposed indication, the results my not be satisfactory to the FDA. Nonclinical and clinical data may be 3 interpreted by the FDA in different ways, which could delay, limit, or prevent regulatory approval.” 4 TAC ¶ 76. Plaintiff also challenges a disclosure from the same report noting that Tenapanor’s 5 “commercial success” depends on whether “tenapanor’s safety and efficacy profile is satisfactory 6 to the FDA and foreign regulatory authorities.” Id. ¶ 78. Plaintiff contends that these warnings 7 failed to inform investors that Ardelyx did not have the results necessary to gain FDA approval. 8 Notably, the Court previously found that these specific risk disclosures revealed the thrust 9 of the allegedly omitted facts and thus undermined Plaintiff’s theory of falsity. See SAC Order at 10 10. Given the dearth of new factual allegations supporting Plaintiff’s theory of falsity, the Court’s 11 opinion is unchanged on this point. Moreover, to adequately challenge a risk disclosure, Plaintiff 12 must allege particularized facts suggesting that the warned-of risks had already materialized at the 13 time of the disclosure. Veal v. Lendingclub Corp., 423 F. Supp. 3d 785, 809 (N.D. Cal. 2019) 14 (dismissing on falsity grounds where plaintiff did not allege risk had materialized “at the time the 15 risk disclosure statements were made”). Because the FDA had not communicated any 16 determinations about the tenapanor application at the time of Defendants’ risk warnings, Plaintiff 17 fails to allege that the risk materialized.2 18 B. Section 20(a) Claim 19 Because Plaintiff does not adequately plead a Section 10(b) claim, his Section 20(a) claim 20 fails. See Lake v. Zogenix, Inc., 2020 WL 3820424, at *13 (N.D. Cal. Jan. 27, 2020). 21 / / / 22 / / / 23 / / / 24 / / / 25 / / / 26 / / / 27 V. CONCLUSION Plaintiff has failed to cure the defects in his complaint, and does not seek leave to amend. 2 For the reasons stated above, the Court GRANTS the motion to dismiss without further leave to 3 amend. The clerk is directed to enter judgment in favor of Defendants and close the file. 4 IT IS SO ORDERED. 5

7 nee, 5. GILLIAM, JR. ib □ United States District Judge 9 10 ll a 12

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