Khoja v. Orexigen Therapeutics, Inc.

189 F.Supp.3d 998

Karim Khoja, on behalf of himself and all others similarly situated, Plaintiff,

v.Orexigen Therapeutics, Inc., Joseph P. Hagan, Michael A. Narachi, and Preston Klassen, Defendants.AND ALL CONSOLIDATED CASES

Case No.: 15-CV-540 JLS (JLB)

United States District Court, S.D. California.

Signed May 19, 2016

Alexander Louis Burns, Kahn Swick Foti LLC, Madisonville, LA, Ramzi Abadou, Kahn Swick Foti LLP, San Francisco, CA, Stephen Richard Basser, Samuel M. Ward, Stephen Richard Basser, Barrack Rodos and Bacine, Danielle Suzanne Myers, Robbins Geller Rudman & Dowd LLP, San Diego, CA, Jennifer Pafiti, Pomerantz LLP, Beverly Hills, CA, Jeremy A. Lieberman, Pomerantz, Grossman, Hufford, Dahlstrom & Gross, LLP, New York, NY, for Plaintiff.

Jessica V. Santamaria, John C. Dwyer, Cooley, LLP, Palo Alto, CA, Dane Robert Voris, Cooley LLP, Mary Kathryn Kelley, Cooley Godward Kronish, San Diego, CA, for Defendants.

ORDER: (1) GRANTING IN PART DEFENDANTS' REQUEST FOR JUDICIAL NOTICE, (2) GRANTING DEFENDANTS' MOTION TO DISMISS, AND (3) DISMISSING LEAD PLAINTIFF'S CONSOLIDATED COMPLAINT

(ECF No. 62)

Hon. Janis L. Sammartino, United States District Judge

Presently before the Court is Defendants Orexigen Therapeutics, Inc., Joseph P. Hagan, Michael A. Narachi, and Preston Klassen's Motion to Dismiss Consolidated Complaint for Violation of the Federal Securities Laws. (MTD, ECF No. 62.) Also before the Court are Lead Plaintiff Karim Khoja's Opposition to (ECF No. 67) and Defendants' Reply in Support of (ECF No. 69) the MTD, as well as Defendants' Request for Judicial Notice (ECF No. 62-25) and Lead Plaintiff's Objections to (ECF No. 68) and Defendants' Reply in Support of (ECF No. 69–1) the RJN.¹ The Court vacated the hearing and took the matter under submission without oral argument pursuant to Civil Local Rule 7.1(d)(1). (ECF No. 70.) Having considered the parties' arguments and the law, the Court GRANTS IN PART AND DENIES IN PART Defendants' RJN (ECF No. 62–25), GRANTS Defendants' MTD (ECF No. 62), and DISMISSES Lead Plaintiff's Consolidated Complaint (CC, ECF No. 55).

BACKGROUND

I. Factual Background

Defendant Orexigen is a developmental stage biotechnology firm focusing on the development of pharmaceutical product candidates for the treatment of obesity.

(Consolidated Compl. (CC) ¶ 7, ECF No. 55.) Defendant Orexigen is a small company with approximately fifty employees. (Id. at ¶ 33.) Its common stock is traded on the NASDAQ. (Id. at ¶¶ 33, 131(a).) Defendant Narachi is Defendant Orexigen's CEO and a director. (Id. at ¶ 34.) Defendant Hagan is the Chief Business Officer and Acting CFO of Defendant Orexigen (id. at ¶ 36), while Defendant Klassen is its Head of Global Development (together with Defendant Narachi, the Insider Defendants) (id. at ¶ 38).

Defendant Orexigen's primary obesity treatment candidate is Contrave (id. at ¶ 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. at ¶¶ 8, 87). Contrave is made from two off-patent generic drugs, bupropion and naltrexone. (Id. at ¶ 66.) Defendant Orexigen has a collaboration agreement with Takeda Pharmaceutical Company Limited to develop and commercialize Contrave in the United States, Canada, and Mexico. (Id. at ¶ 7.)

Defendant Orexigen submitted a new drug application for Contrave to the United States Food and Drug Administration (FDA). (Id. at ¶ 49.) Concerned that Contrave may cause adverse cardiovascular events because of its effect on blood pressure and heart rate (id. at ¶ 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. at ¶¶ 8, 49). The Light Study's Executive Steering Committee was chaired by Dr. Steven Nissen, a Department Chair of Cardiovascular Medicine at the Cleveland Clinic. (Id. at 5 n.1.² ) Defendant Orexigen initiated the Light Study in June 2012 and completed screening in December 2012, resulting in approximately 8,900 patients randomized for treatment. (Id. at ¶ 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 50% or more, Contrave could be approved. (Id. at ¶¶ 51, 96, 126.)

In November 2013, the Light Study's Data Monitoring Committee shared with Defendant Orexigen the completed interim results. (Id. at ¶ 52.) The results, based on ninety-four MACE, which was approximately 25% of the planned MACE for the Light Study, indicated that Contrave reduced cardiovascular events by 41% compared with a placebo. (Id. at ¶¶ 70, 87.) Specifically, thirty-five Contrave patients experienced MACE, while fifty-nine placebo patients did. (Id. at ¶ 88.)

The Light Study's steering committee, Data Monitoring Committee, and Defendant Orexigen entered into a data access plan, in which they agreed to limit the number of people within Defendant Orexigen who had access to the interim results to just those individuals who needed to facilitate submission of Defendant Orexigen's marketing application to the FDA. (Id. at ¶ 53 & n.10.) The Light Study's statistical review team, however, subsequently discovered that Defendant Orexigen had leaked the positive interim data to over 100 people. (Id. at ¶¶ 10, 53.) Included among those to whom the data was leaked was Defendant 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.at ¶¶ 9, 52, 58.) Others who saw the data included investment bankers and several representatives from Takeda. (Id. at ¶ 58.) The FDA later confirmed in a September 10, 2014 report that Defendant Orexigen had improperly disseminated unblinded interim data "far beyond the intended core group." (Id. at ¶ 58 (emphasis omitted).) The Light Study's Data Monitoring Committee "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).) On February 3, 2014, Defendant Orexigen submitted a second data access plan to the FDA. (Id. at ¶¶ 11, 60; see also RJN Ex. A at 9, ECF No. 62–3.)

At a June 4, 2014 meeting, the FDA reminded Defendants Narachi and Klassen that the 25% interim results have "a high degree of uncertainty and were likely to change with the accumulation of additional data." (CC ¶ 59, ECF No. 55.) The FDA was also concerned that Defendant Orexigen's corporate leaders knew the 25% interim results. (Id. at ¶ 10.) The FDA also noted that the unblinding violated Defendant Orexigen's data access plan and that the extent of the confidentiality breach of interim results in the Light Study was unprecedented. (Id. )

On July 2, 2014, Defendant Orexigen filed patent application mi, ber 14/322,810 (the '810 Application) with the United States Patent and Trademark Office (USPTO), listing Defendant Klassen as the "patent applicant" and "inventor." (Id. at ¶¶ 12, 61.) The '810 Application covered a new indication—a cardiovascular benefit—for Contrave based on the 25% interim data. (Id. at ¶ 66.) The '810 Application explicitly included the 25% interim Light Study data (id. at ¶¶ 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 to placebo.

(Id. at ¶ 62 (alterations in original) (emphasis omitted).) Pursuant to 35 U.S.C. § 122, Defendant Orexigen requested that the USPTO keep the '810 Application confidential. (Id. at ¶¶ 12 & n.6, 61.) As part of that request, Defendant Orexigen had to "certify that the invention disclosed in the attached application has not and will not be the subject of an application filed in another country, or under a multilateral international agreement, that requires publication at eighteen months after filing." (RJN Ex. H at 3, ECF No. 62–10 (emphasis in original).) Defendant Orexigen also requested prioritized examination of the '810 Application pursuant to 37 C.F.R. § 1.102(e). (Id. at 9–10.)

On September 10, 2014, the FDA approved Contrave for commercial use (CC ¶¶ 14, 55, 126, ECF No. 55), and on November 26, 2014, the USPTO allowed the '810 Application for issuance as a patent (RJN Ex. H at 11–19, ECF No. 62–10). The USPTO's letter indicated that the issuance fee for the '810 Application had to be paid by February 26, 2015. (Id. at 11.)

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 Contrave³ and recommended that the European Commission grant a centralized marketing authorization. (CC ¶ 63, ECF No. 55.) The European Commission also informed Defendant 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. )

On December 4, 2014, Defendant Orexigen filed patent application number PCT/US2014/068527 with the World Intellectual Property Organization (the WIPO Application). (RJN Ex. V, ECF No. 62–24.) The WIPO Application incorporated by reference the '810 Application. (Id. at 3.) On January 5, 2015, Defendant Orexigen sent the USPTO a Rescission of Previous Nonpublication Request, of which the USPTO acknowledged receipt on January 12, 2015. (CC ¶¶ 14, 64, ECF No. 55; see also RJN Ex. H at 20–21, 23, ECF No. 62–10.) The rescission noted that "[i]f a notice of...