Gregory v. Pronai Therapeutics Inc.

297 F.Supp.3d 372

Michael GREGORY, individually and on behalf of all others similarly situated, Plaintiff,

v.PRONAI THERAPEUTICS INC., Nick Glover, and Sukhi Jagpal, Defendants.

16 Civ. 8703 (PAE)

United States District Court, S.D. New York.

Signed March 13, 2018

Shannon Lee Hopkins, Levi & Korsinsky, LLP, New York, NY, for Plaintiff.

Yeshan Jagroo, pro se.

Mindy Frost, pro se.

Peter Andrew Stokes, Fulbright & Jaworski LLP, Austin, TX, Robin D. Adelstein, Norton Rose Fulbright US LLP, New York, NY, for Defendants.

OPINION & ORDER

PAUL A. ENGELMAYER, District Judge:

In this putative class action under the federal securities laws, lead plaintiffs Michael Gregory, Yeshan Jagroo, and Mindy Frost (collectively, "plaintiffs") claim that pharmaceutical company ProNAi Therapeutics Inc.¹ ("ProNAi"), its CEO and President Nick Glover ("Glover"), and its CFO Sukhi Jagpal ("Jagpal") (together, "ProNAi" or "defendants") made false and misleading statements touting the prospects of PNT2258, ProNAi's sole drug candidate. These statements were made between July 15, 2015, the day ProNAi's initial public offering prospectus was released, and June 6, 2016, the day ProNAi announced the discontinuation of development of PNT2258.

Plaintiffs bring this lawsuit on behalf of all persons who purchased ProNAi securities between July 15, 2015² and June 6, 2016 (the "Class Period"). They allege violations of §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and the corresponding rule of the Securities and Exchange Commission, 17 C.F.R. § 240.10b–5 ("Rule 10b–5").

Pending now is ProNAi's motion to dismiss the Amended Class Action Complaint ("AC") for failure to state a claim under Federal Rules of Civil Procedure 12(b)(6) and 9(b). For the following reasons, the Court grants the motion and dismisses the AC in its entirety.

I. Background³

After identifying the parties, the Court here sets out, at length, the chronology of events regarding PNT2258. This rendition is lengthy because plaintiffs allege that, during the Class Period, ProNAi made some 70 false and misleading statements, spanning a series of disclosures, and because the statements alleged to be actionable concern the status of PNT2258 at various points in its complex testing and development. As a general proposition, plaintiffs' core theory is that ProNAi consistently overstated PNT2258's prospects, downplayed or failed to disclose historical and more recent negative test results, and identified as risk factors circumstances that had already come to pass. The 70 statements that plaintiffs claim to be actionable misstatements or omissions are listed chronologically in the Appendix to this decision. For ease of reference, they are identified there and here as misstatements ("MS") 1 through 70.

A. Parties

ProNAi is "a clinical stage oncology company with a focus on pioneering a novel class of therapeutics based on its proprietary DNA interference (DNAi) technology platform." AC at 9. "Throughout the Class Period, PNT2258 (a DNAi drug) was the Company's only drug product candidate and, thus, the successful development of PNT2258 was critical to ProNAi's long-term viability." Id.

The individual defendants are Glover, ProNAi's President and CEO and a member of its board since September 2014, and Jagpal, ProNAi's CFO since February 2015 (collectively, the "Individual Defendants"). Id. at 7–8.

The lead plaintiffs all purchased ProNAi securities during the Class Period. Id. at 6.

B. Pre–Class Period Events

1. PNT2258

During the Class Period, PNT2258 was ProNAi's lead product candidate and the company's only drug in clinical development. Id. at 9, 11. It was developed based on ProNAi's proprietary DNA interference (DNAi) technology platform. Id. at 11.

As ProNAi described DNAi technology, it is based on a discovery from "Wayne State University and Karmanos Cancer Institute that single-stranded DNA oligonucleotides can interact with genomic DNA" and interfere with gene transcription. See Prospectus at 82. The theory is that those oligonucleotides could be used to interfere with the transcription of genes linked to particular diseases. ProNAi's Prospectus illustrated this concept as follows:

Figure 1 (Prospectus at 82)

As the Prospectus illustrated, ProNAi was to use pH–responsive lipid nanoparticles to protect the DNAi oligonucleotide and deliver them across physiological membranes to the cancer cells.

The drug in question here, PNT2258, was within the DNAi class. AC at 13. PNT2258 was designed to target a particular oncogene, BCL2, and interfere with its transcription. Id. at 11. BCL2 gives cancer cells the ability to resist the primary mechanism for the removal of damaged or unnecessary cells, known as apoptosis. Id. By effectively programming cancer cells to survive this naturally occurring process, an overexpression of BCL2 contributes to the formation, growth, and chemo-resistance of a wide range of tumors. Id.

PNT2258 was designed with the goal of restoring the apoptotic process and, thus, killing cancer cells. Id. PNT2258 contains two parts: (1) PNT100, the single-stranded DNAi oligonucleotide that was designed to target a particular regulatory region of BCL2 to limit transcription, and (2) the protective lipid nanoparticles that allow PNT100 to travel to the cancer cell's nucleus so that it can modulate gene transcription. See Prospectus at 85.

Figure 2 (Prospectus at 83)

Defendants, during the Class Period, developed PNT2258 as a therapy for medical conditions "DLBCL" and "RCLL." "DLBCL is a cancer of B cells, a type of white blood cell responsible for producing antibodies. It is the most common type of [non–Hodgkins lymphoma ] among adults, accounting for about 30 percent of newly diagnosed cases in the United States. It occurs primarily in older individuals and is an aggressive lymphoma that can arise in lymph nodes or outside of the lymphatic system in the gastrointestinal tract, testes, thyroid, skin, breast, bone, or brain." AC at 12. "RCLL [or Richter's CLL] is a transformation which occurs in about 5–10% of B cell chronic lymphocytic leukemia (CLL) and hairy cell leukemia into a fast-growing DLBCL, which is refractory to treatment and carries a bad prognosis. Overall, the median survival for RCLL patients is between five and eight months." Id.

2. Clinical Trials⁴

In 2010, ProNAi conducted a dose-escalation, Phase 1 study of PNT2258. Id. at 19. The study was conducted on 22 patients with relapsed or refractory solid tumors. Id. This was a safety study, designed to determine appropriate dosing for future studies which would test the drug's efficacy. Id. It was open-label, meaning ProNAi could access and evaluate the trial data while the trial was ongoing. Id. Of the study's 22 patients, 19 had an "ECOG" performance scale rating of 1–2, which meant that they were "fully active or slightly restricted in strenuous activity but nevertheless ambulatory." Id.⁵

On December 5, 2012, ProNAi disclosed results of the Phase 1 study at the annual Symposium on Molecular Targets and Cancer Therapeutics. Id. at 20; Stokes Decl. Ex. 5. Of the 22 patients participating in the trial, ProNAi disclosed, none reported a complete or partial response to the drug. AC at 12. One patient died within 30 days of beginning the trial. Id. Thirteen experienced a deterioration in condition. Id. Five did not experience any clinical benefit. Id. As to more specific data, however, ProNAi, reported only pharmacokinetics data, that is, data regarding "the way in which drugs move through the body during absorption, distribution, metabolism, and excretion." Id. This data has implications for drug safety. Id. ProNAi did not report pharmodynamics data, meaning data regarding "the way in which drugs [a]ffect the body, namely whether the drug dosed at the site of action has a resulting effect. Id. Such data has implications for drug efficacy. However, the Phase 1 study was designed to test "safety and tolerability," AC at 19, not efficacy.

In December 2012, ProNAi began to enroll patients in its Pilot Phase 2 trial of PNT2258, which was also open-label and lacked a control group. The primary objectives of this trial were to continue to collect safety data and to determine PNT2258's "anti-tumor activity across several hematological malignancies." Id. at 21. The study enrolled 13 patients. Id. Of those 13, 12 patients had an ECOG performance scale rating of 0–1. Id. The 13th had a score of 2. Id. Approximately 77% of the enrolled patients had received two or fewer prior lines of therapy. Id.

On December 5, 2014, ProNAi announced interim efficacy results in a press release. Id. Four of the DLBCL patients responded to treatment. Id. at 23. Three had complete responses and the fourth had a partial response. Id. One RCLL patient had a complete response. Id.⁶

On December 28, 2014, based on the interim response of patients in the Pilot Phase II trial, ProNAi began enrolling patients in its Wolverine Trial. Id. at 28. This decision to enroll patients in a new trial based on an interim response was, plaintiffs allege, a deviation from industry practice. Id. Like past trials, the Wolverine Trial was open and without a control group, features that plaintiffs again claim were at odds with industry practice. Id. at 26, 28.

According to the Amended Complaint, the primary objective of the Wolverine trial was "to characterize anti-tumor activity and collect safety data on approximately 60 patients with relapsed or refractory DLBCL." Id. at 29. The original inclusion criteria of the trial did not limit the number of individuals with prior therapies and indicated that the study would accept patients with ECOG performance status of 0–2. Id. Ultimately 37 patients were enrolled in the study (which was ended prematurely).Id. Of those patients, 27% had either an ECOG performance status of 2 or had received four or more prior therapies. Id.

On December 22, 2014, six days before the clinical trial started enrolling patients, ProNAi modified...