Nguyen v. NewLink, No. 19-642 (2d Cir. 2020)
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Plaintiffs filed a class action under S.E.C. Rule 10b-5, 17 C.F.R. 240.10b-5, following the failure of NewLink's Phase 3 clinical trial for a novel pancreatic cancer drug and the resulting decline in the market value of NewLink shares.
The Second Circuit held that defendants' statements about the efficacy of their pancreatic cancer drug were puffery, not material misrepresentations. However, the court held that plaintiffs plausibly pled material misrepresentation and loss causation for defendants' statements about the scientific literature and the design of their clinical trial. Therefore, the court affirmed the district court's dismissal in part regarding the 2013-2016 Assessments; vacated the dismissal in part regarding the September, March, and Enrollment statements; and remanded for further proceedings.
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19-642 Nguyen v. NewLink 1 In the 2 United States Court of Appeals 3 For the Second Circuit 4 ________ 5 6 AUGUST TERM, 2019 7 8 9 ARGUED: OCTOBER 21, 2019 DECIDED: JULY 13, 2020 10 11 No. 19-642-cv 12 13 14 15 TREVOR ABRAMSON, Individually and on behalf of all others similarly situated, Plaintiff, 16 17 18 19 20 MICHAEL NGUYEN, Individually and on behalf of all others similarly situated, KELLY NGUYEN, Individually and on behalf of all others similarly situated Lead Plaintiffs-Appellants, 21 22 v. 23 24 25 26 NEWLINK GENETICS CORPORATION, CHARLES J. LINK, JR., NICHOLAS N. VAHANIAN, Defendants-Appellees. 27 28 29 30 JOHN B. HENNEMAN, III, GORDON H. LINK, JR., Defendants. ________ 31 32 33 34 35 Appeal from the United States District Court for the Southern District of New York. ________ 2 1 No. 16-3734-cr Before: KEARSE, WALKER, and LIVINGSTON, Circuit Judges. 2 3 ________ 4 Plaintiffs Michael Nguyen and Kelly Nguyen brought this class action 5 under S.E.C. Rule 10b-5, 17 C.F.R. 240.10b-5, following the failure of Defendant 6 NewLink Genetics Corporation’s (“NewLink”) Phase 3 clinical trial for a novel 7 pancreatic cancer drug and the resulting decline in the market value of NewLink 8 shares. On appeal, Plaintiffs argue that the district court (William H. Pauley III, 9 Judge) erred in dismissing pursuant to Fed. R. Civ. P. 12(b)(6) their Rule 10b-5 10 claims alleging that NewLink and its leadership (collectively, “Defendants”) 11 materially misrepresented the efficacy of their pancreatic cancer drug, scientific 12 literature on pancreatic cancer, and the design of their Phase 3 clinical trial, and 13 these misrepresentations caused Plaintiffs financial losses. We conclude that 14 Defendants’ statements about the efficacy of their pancreatic cancer drug were 15 puffery, not material misrepresentations. We conclude, however, that Plaintiffs 16 plausibly pled material misrepresentation and loss causation for Defendants’ 17 statements about the scientific literature and the design of their clinical trial. We 18 therefore AFFIRM the district court’s dismissal of Plaintiffs’ Rule 10b-5 claim 19 regarding the 2013–2016 Assessments, VACATE the district court’s dismissal of 20 Plaintiffs’ Rule 10b-5 claims regarding the September, March, and Enrollment 21 statements, and REMAND for further proceedings consistent with this opinion. 22 ________ 23 KIM E. MILLER, Kahn Swick & Foti, LLC, New York, NY (J. Ryan 24 Lopatka, Kahn Swick & Foti, LLC, New York, NY; Lewis S. 25 Kahn and Craig J. Geraci, Kahn Swick & Foti, LLC, New 26 Orleans, LA, on the brief), for Plaintiffs-Appellants. 3 No. 19-642 1 SARAH M. LIGHTDALE, Cooley LLP, New York, NY (David H. 2 Kupfer, Cooley LLP, New York, NY; Samantha A. Kirby, 3 Cooley LLP, Palo Alto, CA, on the brief), for Defendants-Appellees. 4 ________ 5 JOHN M. WALKER, JR., Circuit Judge: 6 Plaintiffs Michael Nguyen and Kelly Nguyen brought this class action 7 under S.E.C. Rule 10b-5, 17 C.F.R. 240.10b-5, following the failure of Defendant 8 NewLink Genetics Corporation’s (“NewLink”) Phase 3 clinical trial for a novel 9 pancreatic cancer drug and the resulting decline in the market value of NewLink 10 shares. On appeal, Plaintiffs argue that the district court (William H. Pauley III, 11 Judge) erred in dismissing pursuant to Fed. R. Civ. P. 12(b)(6) their Rule 10b-5 12 claims alleging that NewLink and its leadership (collectively, “Defendants”) 13 materially misrepresented the efficacy of their pancreatic cancer drug, scientific 14 literature on pancreatic cancer, and the design of their Phase 3 clinical trial, and 15 these misrepresentations caused Plaintiffs financial losses. We conclude that 16 Defendants’ statements about the efficacy of their pancreatic cancer drug were 17 puffery, not material misrepresentations. We conclude, however, that Plaintiffs 18 plausibly pled material misrepresentation and loss causation for Defendants’ 19 statements about the scientific literature and the design of their clinical trial. We 20 therefore AFFIRM the district court’s dismissal of Plaintiffs’ Rule 10b-5 claim 21 regarding the 2013–2016 Assessments, VACATE the district court’s dismissal of 22 Plaintiffs’ Rule 10b-5 claims regarding the September, March, and Enrollment 23 statements, and REMAND for further proceedings consistent with this opinion. 24 4 No. 19-642 BACKGROUND 1 2 Charles J. Link and Nicholas N. Vahanian are the co-founders of NewLink, 3 a pharmaceutical company that develops cancer treatments. At the time of the 4 events giving rise to the present litigation, Link was Chairman and Chief Executive 5 Officer of NewLink, and Vahanian was President and Chief Medical Officer. 6 Because of the huge demand for efficacious cancer drugs, in particular those 7 that can successfully treat the most intractable cancers, the market in shares of 8 firms that can potentially treat intractable cancers is highly sensitive to 9 developments in trials to establish a drug’s effectiveness and gain the Food and 10 Drug Administration’s (“FDA”) approval. Generally, the FDA requires three 11 phases of human clinical trials. 12 investigators are required to submit their data for approval to the FDA before 13 continuing to the next phase and launching a larger trial. The same process applies 14 when a drug candidate moves from a phase 2 trial to a larger phase 3 trial. If the 15 phase 3 trial results are sufficiently strong, investigators can submit a new drug 16 application and receive FDA approval to manufacture and sell the drug. The 17 results of each trial and the success or failure of each phase are closely watched by 18 the market, and the market reacts accordingly. After the completion of the phase 1 trial, 19 The present litigation stems from statements made and market losses 20 incurred during trials related to NewLink’s development of algenpantucel-L, or 21 HyperAcute Pancreas, a potential treatment for pancreatic cancer following a 22 patient’s resection (surgery to remove a tumor). 1 In 2010, NewLink completed The facts described herein are from the second amended complaint, which we take to be true in our review of the district court’s Rule 12(b)(6) dismissal. See Ganino v. Citizens Utilities Co., 228 F.3d 154, 161 (2d Cir. 2000). 1 5 No. 19-642 1 enrollment for a Phase 2 trial for HyperAcute Pancreas. One of the criteria for 2 enrollment in that trial was that subjects had to have an “[e]xpected survival 3 [greater than or equal to] 6 months.”2 Individuals with either Stage I or Stage II 4 pancreatic cancer were eligible to enroll. The Phase 2 trial did not have a control 5 group, and it was not a double-blind study. In June 2012, after at least 24 months 6 of follow-up with each patient, NewLink ended the Phase 2 trial and assessed that 7 those treated with HyperAcute Pancreas had a “survival rate,” or median life 8 expectancy, of 24.1 months. 9 On September 27, 2013, roughly one year after the end of the Phase 2 trial 10 and during NewLink’s more rigorous Phase 3 trial for HyperAcute Pancreas, 11 Vahanian gave a presentation before prospective investors at a biotech conference 12 highlighting industry “Newsmakers.” 3 At that conference, Vahanian discussed 13 the Phase 2 trial for HyperAcute Pancreas and referred to its 24.1-month survival 14 rate as “remarkable.” 4 After noting that patients with other cancers like melanoma 15 have survival rates as high as “30 months or 40 months,” he compared, in the 16 “September Statement,” the low survival rates for resected pancreatic cancer 17 allegedly reported in the relevant literature: 18 Resected pancreatic cancer, patients live 15 months, 19 19 months. You can look at the last 30 years, all the major 20 studies, pancreatic cancer survival—US-based studies, I Vaccine Study for Surgically Resected Pancreatic Cancer, CLINICALTRIALS.GOV (June 26, 2015), https://clinicaltrials.gov/ct2/show/NCT00569387. 2 3 App’x at 974. 4 Id. at 975. 6 No. 19-642 1 want to make that distinction—survival rates come 2 between 15 to 19, 20 months. That’s it. 5 3 Shortly before making this comment, Vahanian had referenced in his 4 presentation a paper by Manuel Hidalgo that identified survival rates of 15.4 5 months and 12.7 months for Stage IIA and IIB pancreatic cancer patients. 6 Although not mentioned by Vahanian at the conference, the same Hidalgo paper 7 presented survival rates of 24.1 months and 20.6 months for Stage IA and IB 8 patients.6 9 In addition to Vahanian’s conference statement, NewLink and Vahanian 10 made several statements between 2013 and 2016 (“2013–2016 Assessments”) that 11 expressed confidence in the Phase 2 trial results. In one public filing, NewLink 12 referred to the “encouraging interim data from [its] Phase 2 clinical trial.”7 In other 13 filings, NewLink claimed that the Phase 2 trial saw “improvement in both 14 disease-free and overall survival.”8 On an investor call, Vahanian claimed that the 15 Phase 2 trial results “really exceeded any expectation that experts in the field had 5 Id. at 978. Manuel Hidalgo, Pancreatic Cancer, 362 NEW ENG. J. MED. 1605, 1610 (2010) (citing data from Bilimoria et al., Validation of the 6th Edition AJCC Pancreatic Cancer Staging System, 110 CANCER 738, 741 (2007) (reviewing outcomes, as reported in the National Cancer Database, for 21,512 resected pancreatic cancer patients)). 6 7 App’x at 748. 8 Id. at 749. 7 No. 19-642 1 for what would happen in terms of one-year survival” and that the interim results 2 from the Phase 2 trial were “a very strong efficacy signal.” 9 3 Roughly contemporaneous with the September Statement, NewLink 4 purportedly completed enrollment of subjects for its Phase 3 trial for HyperAcute 5 Pancreas. The Phase 3 trial did not have a six-month expected survival enrollment 6 criterion, although NewLink still sought to enroll individuals with either Stage I 7 or Stage II pancreatic cancer. Unlike the Phase 2 trial, the Phase 3 trial had a control 8 group and was double-blind. On September 17, 2013, NewLink published a press 9 release (“Enrollment Statement”) stating that the Phase 3 trial “accrual goal of 722 10 subjects with surgically resected pancreatic cancer ha[d] been met.” 10 The Phase 3 11 trial would publish results in three waves: after 222 “events” (i.e. deaths of trial 12 subjects), after 333 events, and after 444 events. 13 On March 7, 2014, after 222 events, the first wave of results came in for the 14 Phase 3 trial. The results showed that HyperAcute Pancreas had not satisfied the 15 threshold for FDA approval. NewLink stock prices dropped. Four days later, 16 Vahanian had a call with industry analysts. An analyst from Jefferies & Company 17 asked him whether analysts should “assume that the control arm would be living 18 beyond the low 20s” and asked what would happen to NewLink’s statistical 19 assumptions if analysts “ma[d]e the assumption that the control arm is living at 24 20 or 25 months.”11 Vahanian responded with the following “March Statement”: 9 Id. at 744. 10 Id. at 717. 11 Id. at 723. 8 No. 19-642 1 Considering that it is our expectations, it is our belief that 2 in our study today we don’t have any reason to believe 3 that median survival for these patients will be more than 4 low 5 expectations were 18, 19 months, study is designed in the 6 low 20s.12 20s. Nevertheless, our study even though 7 After the call, NewLink stock prices rebounded. Between the first wave of results 8 and the second wave, Vahanian and Link sold $5 million and $10 million of their 9 NewLink holdings respectively. 10 On March 11, 2015, after 333 events and the release of the second wave of 11 results, NewLink announced that HyperAcute Pancreas had again not satisfied 12 the threshold for FDA approval. NewLink stock prices dropped again. The 13 second wave of results showed a median survival rate of 28.5 months for both the 14 control and test groups blended together. On a July 2015 earnings call, Vahanian 15 reiterated NewLink’s belief that the median months for survival in the “control 16 arm [was] in the low 20s,” 13 After NewLink’s reassuring statements, NewLink 17 stock prices once again rebounded. Between the second and third waves of results, 18 Vahanian and Link sold another $2 million and $9 million of their NewLink 19 holdings respectively. They stopped trading before the announcement of the third 20 wave of results. 21 On March 9, 2016, after 444 events and the end of the Phase 3 trial, NewLink 22 announced that the Phase 3 trial had failed and HyperAcute Pancreas would not 12 Id. at 724. 13 Id. at 730. 9 No. 19-642 1 satisfy the threshold for FDA approval. The price of NewLink stock dropped by 2 30.61%. The third wave of results showed a median survival rate of 27.3 months 3 for the test group, which was below the 30.4-month survival rate for the control 4 group. 5 Shortly before publication of the third wave of results, NewLink reported 6 and Jefferies & Company highlighted in a “Flash Note” that one clinical site in the 7 Phase 3 trial had been “non-compliant with certain [Good Clinical Practice 8 (“GCP”)] requirements.” 14 NewLink identified the noncompliance as “a minor 9 procedural issue involving one clinician.”15 The Flash Note stated that the clinical 10 site at issue “only ha[d] ‘a few’ patients enrolled” and “in case any patients need 11 to be excluded . . . exclusion of these patients should not have a material impact 12 on the trial.”16 The price of NewLink stock dropped after the Flash Note was 13 published. For the present litigation, Plaintiffs have identified a former NewLink 14 Clinical Research Associate (“Confidential Witness”) who claims to have 15 “witnessed pervasive GCP violations” at NewLink, including the “acceptance of 16 patients in the [Phase 3] trial that did not qualify.”17 The Confidential Witness did 17 not specifically link the improper enrollments to the GCP noncompliance 18 described in the Flash Note. 19 After the Phase 3 trial’s failure, Plaintiffs brought this class action alleging 20 that Defendants’ 2013–2016 Assessments, the September Statement, the March 14 Id. at 824. 15 Id. 16 Id. 17 Id. at 733. 10 No. 19-642 1 Statement, and the Enrollment Statement were materially false or misleading 2 statements that amounted to securities fraud under S.E.C. Rule 10b-5. 3 challenging the 2013–2016 Assessments, September Statement, and March 4 Statement, Plaintiffs highlighted a list of “major” studies of resected pancreatic 5 cancer patients that was published in a 2011 medical journal by Vincent Picozzi, a 6 pancreatic cancer researcher that NewLink had previously referred to as an 7 authority on pancreatic cancer. Picozzi’s list included six American studies that 8 showed survival rates of 43.7, 25.4, 25, 21, 20.6, and 16.7 months. The district court 9 dismissed Plaintiffs’ claim regarding the 2013–2016 Assessments, September 10 Statement, and March Statement, finding that Plaintiffs had not pleaded their 11 falsity. It also dismissed Plaintiffs’ claim regarding the Enrollment Statement, 12 finding that Plaintiffs had alleged falsity but had failed to plead that their financial 13 losses were caused by the false statement. Plaintiffs challenge each of these 14 dismissals. In DISCUSSION 15 16 On appeal, Plaintiffs argue that they (1) adequately alleged falsity with 17 respect to the 2013–2016 Assessments, September Statement, and March Statement 18 and (2) adequately alleged falsity and loss causation with respect to the Enrollment 19 Statement. We review the district court’s dismissal of plaintiffs’ claims for failure 20 to state a claim de novo, “accepting all factual allegations in the complaint as true 21 and drawing all reasonable inferences in the plaintiffs’ favor.”18 A. 22 18 Whether Plaintiffs Have Adequately Alleged Falsity Ganino, 228 F.3d at 161. 11 No. 19-642 1 The district court dismissed Plaintiffs’ claims regarding the 2013–2016 2 Assessments, September Statement, and March Statement after finding that these 3 statements were not plausibly alleged to be false or materially misleading. 4 Specifically, the district court determined that the 2013–2016 Assessments were 5 not misleading because they were “expressions of puffery and corporate optimism 6 that do not . . . give rise to securities violations.”19 It then determined that the 7 September and March statements were unactionable statements of opinion or 8 disagreements with how Defendants “chose to interpret the historical data,” rather 9 than falsifiable statements of facts. 20 We agree with the district court’s disposition 10 of Plaintiffs’ securities fraud claim based on the 2013–2016 Assessments but 11 disagree with its conclusion regarding the September and March statements. 12 In assessing Plaintiffs’ falsity arguments, we consider whether Plaintiffs 13 have met the heightened pleading standards in the Private Securities Litigation 14 Reform Act of 1995 (“PSLRA”) and Federal Rule of Civil Procedure 9(b). The 15 PSLRA requires that plaintiffs “specify each statement alleged to have been 16 misleading, the reason or reasons why the statement is misleading, and, if an 17 allegation regarding the statement or omission is made on information and belief 18 . . . all facts on which that belief is formed.” 21 Similarly, Rule 9(b) requires that “a Nguyen v. NewLink Genetics Corp., 297 F. Supp. 3d 472, 489 (S.D.N.Y. 2018) (internal quotation marks omitted). 19 Nguyen v. NewLink Genetics Corp. (Nguyen II), No. 16-cv-3545, 2019 WL 591556, at *5 (S.D.N.Y. Feb. 13, 2019) (internal quotation marks omitted). 20 21 15 U.S.C. § 78u-4(b)(1). 12 No. 19-642 1 complaint . . . specify the statements that the plaintiff contends were fraudulent” 2 and “explain why the statements were fraudulent.” 22 1. 3 2013–2016 Assessments 4 We agree with the district court that Plaintiffs have not adequately pled the 5 false or misleading nature of the 2013–2016 Assessments. Plaintiffs argue that 6 these statements were false or misleading because the Phase 2 trial excluded 7 individuals whose life expectancy was below six months, which “none of the other 8 major pancreatic cancer studies” did.23 9 design of the Phase 2 trial would naturally lead to higher survival rates than those 10 seen in other pancreatic cancer studies, Defendants could not honestly compare 11 the Phase 2 results against other studies’ results and say that the Phase 2 results 12 were “encouraging,” “an improvement,” or suggestive of HyperAcute Pancreas’s 13 “efficacy.” Plaintiffs’ theory is untenable. 14 Under Plaintiffs’ theory, because the Generic, indefinite statements of corporate optimism typically are not 15 actionable. We do not anticipate that reasonable investors place substantial 16 reliance on generalizations regarding a company’s health or the strength of a 17 company’s product.24 And we have never required corporate officials to “present 18 an overly gloomy or cautious picture of current performance and future Rombach v. Chang, 355 F.3d 164, 170 (2d Cir. 2004) (internal quotation marks omitted); see also Fed. R. Civ. Pro. 9(b). 22 23 Appellants’ Br. at 40. See ECA, Local 134 IBEW Joint Pension Trust of Chicago v. JP Morgan Chase Co., 553 F.3d 187, 206 (2d Cir. 2009). 24 13 No. 19-642 1 prospects.” 25 We have found “puffery”—like Defendants’ descriptions of the 2 Phase 2 results as “encouraging” and “an improvement” 26—actionable only when 3 the speaker “knew that the contrary was true.”27 Plaintiffs have not plausibly pled 4 that Defendants believed the 2013–2016 Assessments to be false. As compared to 5 the results of some studies of resected pancreatic cancer patients, the Phase 2 6 results arguably did show improvement. Although Vahanian and Link sold 7 millions in NewLink stock during the pendency of the Phase 3 trial, this alone does 8 not show that they disbelieved their generic, positive representations about 9 HyperAcute Pancreas. Vahanian and Link reasonably could have been selling 10 stock to hedge against the risk of the Phase 3 trial failing, despite their belief that 11 HyperAcute Pancreas showed promise. Under these circumstances, we conclude 12 that the 2013–2016 Assessments were unactionable puffery. 2. 13 September Statement 14 The status of the September Statement, to the effect that “all the major 15 studies” show survival rates of at most 20 months for resected pancreatic cancer 16 patients, presents a more difficult question that requires discussion of the 17 distinction between statements of opinion and statements of fact in our 18 jurisprudence. 19 statement of a material fact” and (2) from “omit[ting] to state a material fact 20 necessary in order to make [] statements made, in the light of the circumstances 25 Rule 10b-5 prohibits persons from (1) making “any untrue Novak v. Kasaks, 216 F.3d 300, 309 (2d Cir. 2000). See Kleinman v. Elan Corp., PLC, 706 F.3d 145, 153 (2d Cir. 2013) (identifying “words like ‘encouraging’” as “‘expressions of puffery and corporate optimism’ that do not generally ‘give rise to securities violations’” (quoting Rombach, 355 F.3d at 174)). 26 27 Novak, 216 F.3d at 315. 14 No. 19-642 1 under which they were made, not misleading” in connection with the purchase or 2 sale of any security.28 The first part of this language unambiguously renders 3 untrue statements of fact actionable. Although it has not always been appreciated 4 in our jurisprudence, the second part of this language, which does not cabin 5 “statements” with the modifier “of a material fact,” renders both statements of fact 6 and those of opinion actionable when such statements would be misleading 7 without the contextualization of material facts.29 8 Before the Supreme Court decided Omnicare, Inc. v. Laborers Dist. Council 9 Const. Industry Pension Fund, 30 our circuit paid little attention to this second part of 10 Rule 10b-5 and recognized sparingly few circumstances in which a statement of 11 opinion would be actionable. As now, plaintiffs alleging the falsity of a statement 12 of fact merely had to plead that the statement was incorrect. But a district court’s 13 characterization of a statement as one of opinion rather than one of fact was all but 14 fatal to the plaintiff’s Rule 10b-5 claim. Plaintiffs challenging a statement of 15 opinion had to plead “that the statement was both objectively false and 16 disbelieved by the defendant at the time it was expressed.” 31 17 substantial challenge for plaintiffs because statements of opinion, as defined in our 28 This posed a 17 C.F.R. § 240.10b-5(b). See Omnicare, Inc. v. Laborers Dist. Council Const. Industry Pension Fund, 575 U.S. 175, 187 n.4 (2015). Omnicare addressed § 11 of the Securities Act of 1933, which shares much of its relevant text with Rule 10b-5. 29 30 See generally id. 31 Fait v. Regions Financial Corp., 655 F.3d 105, 110 (2d Cir. 2011) (internal quotation marks omitted). 15 No. 19-642 1 jurisprudence, did not regard “objective factual matters,” 32 and it could be difficult 2 for plaintiffs to locate evidence suggesting as plausible that a defendant’s 3 subjective beliefs conflicted with that defendant’s stated opinion. The Supreme 4 Court’s Omnicare decision altered this calculus. 5 Analyzing § 11 of the Securities Act of 1933, which shares the relevant text 6 concerning false and misleading statements with Rule 10b-5,33 Omnicare rejected 7 the proposition that there can be no liability based on a statement of opinion unless 8 the speaker disbelieved the opinion at the time it was made. Omnicare established 9 two principal ways of challenging statements of opinion that do not require 10 plaintiffs to show that the speaker subjectively disbelieved the statement. First, 11 plaintiffs can allege that a statement of opinion contained one or more embedded 12 factual statements that can be proven false. 34 A statement structured, “I believe 13 that x is so because y has occurred,” contains the factual and falsifiable statement, 14 “y has occurred.” If y has in fact not occurred, the statement of opinion is 15 actionable because an embedded but complete “statement of a material fact” 16 under the first part of Rule 10b-5 can be proven false. 17 Second and relevant here, plaintiffs can allege that a statement of opinion, 18 without providing critical context, implied facts that can be proven false. Omnicare 19 used the statement, “We believe our conduct is lawful,” as an example.35 The 32 Id. at 111. See 15 U.S.C. § 77k(a) (creating liability for a registration statement that “contained an untrue statement of a material fact or omitted to state a material fact . . . necessary to make the statements therein not misleading”). 33 34 Omnicare, 575 U.S. at 185. 35 Id. at 188. 16 No. 19-642 1 Supreme Court explained that this statement implies, if investors are not informed 2 otherwise, that the speaker has so concluded after investigating the governing 3 law.36 If the speaker in fact has not investigated the governing law, and has 4 omitted this critical context, the statement of opinion, although literally true 5 (assuming the speaker believed it) and thus not actionable under the first part of 6 Rule 10b-5, may be misleading by omission and thus actionable under the second 7 part of Rule 10b-5. In other words, when a statement of opinion implies facts or 8 the absence of contrary facts, and the speaker knows or reasonably should know 9 of different material facts that were omitted, liability under Rule 10b-5 may follow. 10 With respect to this second basis for challenging a statement of opinion, 11 Omnicare held that the appropriate perspective for identifying whether a statement 12 of opinion implies facts is that of the reasonable investor.37 In assessing what a 13 reasonable investor would expect, the Supreme Court stressed the importance of 14 context, such as “the customs and practices of the relevant industry” and whether 15 the opinion was expressed in a formal statement such as an S.E.C. filing or instead 16 was a “baseless, off-the-cuff judgment[], of the kind that an individual might 17 communicate in daily life.”38 Finally, Omnicare recognized that “[r]easonable 18 investors understand that opinions sometimes rest on a weighing of competing 19 facts” and thus that a statement of opinion does not imply false information to a 20 reasonable investor simply because there is “some fact cutting the other way” that 21 the speaker omitted. 39 Returning to its example, “We believe our conduct is 36 Id. 37 Id. 38 Id. at 190. 39 Id. at 189–90. 17 No. 19-642 1 lawful,” the Court explained that this statement would not be misleading by 2 omission if the speaker “did not disclose that a single junior attorney expressed 3 doubts about a practice’s legality, when six of his more senior colleagues gave a 4 stamp of approval.”40 5 Turning now to the September Statement, the district court characterized 6 the statement as one of opinion rather than fact because “Vahanian was discussing 7 studies that he believed to be ‘major’” and was presenting his own analysis of data 8 when he represented the findings of “all the major studies.”41 The district court, 9 emphasizing that Plaintiffs had “fail[ed] to aver that the speaker did not hold the 10 belief he professed” and concluding that Plaintiffs had not “misled investors,” 11 then had little difficulty dismissing Plaintiffs’ Rule 10b-5 claim.42 Plaintiffs first 12 dispute the district court’s characterization of the September Statement, arguing 13 that it contravenes Omnicare’s dictate that courts should distinguish statements of 14 opinion from those of fact by reference to the distinctions between the two that are 15 “so ingrained in our everyday ways of speaking and thinking.”43 Ultimately, we 16 need not decide whether the district court’s classification and methodology for 17 winnowing statements of fact from those of opinion ran afoul of Omnicare. By 18 increasing the ability of plaintiffs to plead material omissions with respect to 19 statements of opinion as described above, Omnicare reduced the significance of 20 district courts’ classification of statements as those of fact or opinion. The outcome 40 Id. at 190. 41 Nguyen II, 2019 WL 591556, at *4. 42 Id. at *4 (internal quotation marks omitted). 43 Omnicare, 575 U.S. at 183. 18 No. 19-642 1 of Plaintiffs’ Rule 10b-5 claim would not differ based on whether the September 2 Statement was a statement of fact or one of opinion. 3 Plaintiffs also contend that the September Statement misled investors by 4 implying that no credible studies have shown resected pancreatic cancer patients 5 to have survival rates higher than 20 months. We agree that the September 6 Statement plausibly would have conveyed this supposed fact to a reasonable 7 investor. To start, the September Statement, whether one chooses to call it a 8 statement of fact or opinion, was not framed like a statement of opinion. Vahanian 9 did not couch his representation of survival rates with prefatory language like “I 10 believe” or “In my estimation.”44 Instead, he flatly said, “Resected pancreatic 11 cancer patients live 15 months, 19 months . . . . 20 months. That’s it.”45 He then 12 cited the results of “all the major [American] studies” from “the last 30 years” in 13 direct support of this categorical proposition.46 A jury could reasonably find that 14 Vahanian was not, as the district court concluded, merely “discussing studies he 15 believed to be ‘major’” and his own subjective analysis, 47 but rather reassuring his 16 audience of the depth of his knowledge and the accuracy of his apparently factual 17 representation in case they doubted that survival rates actually “come between 15 Id. at 187 (describing that a “reasonable person . . . . recognizes the import of words like ‘I think’ or ‘I believe’” and that this prefatory language is relevant to our securities fraud analysis because it “convey[s] some lack of certainty as to the statement’s content”). 44 45 App’x at 978. 46 Id. 47 Nguyen II, 2019 WL 591556, at *4. 19 No. 19-642 1 to 19, 20 months.”48 This context, including the specificity of the representation 49 2 and the authority with which it was made, could lead “a reasonable person [to] 3 think that a more detailed investigation lay behind the . . . statement” 50 and that 4 no meaningful evidence existed to rebut the proposition that resected pancreatic 5 cancer patients live between 15 and 20 months. Finally, Vahanian made his 6 statement during NewLink’s scheduled presentation at an important conference 7 for biotech investors. 8 interpreted his statement as a “baseless, off-the-cuff judgment[]” 51; instead, they 9 would have credited his statement as researched and intentional, part of a Investors in attendance reasonably would not have 10 well-prepared professional presentation. A jury could find that Vahanian’s 11 statement, whether characterized as one of fact or opinion, would, absent 12 clarification, lead a reasonable investor to the falsifiable conclusion that no study 13 any knowledgeable person would find credible has shown the median survival 14 rates of resected pancreatic cancer patients to be longer than 20 months. 15 Plaintiffs plausibly pled the false or misleading nature of this conclusion. 16 Half of the American studies that Plaintiffs submitted—all of which Picozzi, an 17 expert on pancreatic cancer, described outside the context of this litigation as 18 “major”—preceded the September Statement and showed survival rates ranging 48 App’x at 978. Omnicare, 575 U.S. at 190, n.8 (explaining that “a reasonable investor generally considers the specificity of an opinion statement in making inferences about its basis”). 49 50 Id. 51 Id. at 190. 20 No. 19-642 1 from 25 months to 43 months.52 While we accept that speakers may reasonably 2 form opinions in spite of “some fact cutting the other way,”53 and have no 3 obligation to disclose all contrary facts irrespective of their significance, a jury 4 could conclude that Vahanian’s confident statement and his omission of noted 5 studies’ findings were a bridge too far. When omitted contrary facts substantially 6 undermine the conclusion a reasonable investor would reach from a statement of 7 opinion, that statement is misleading and actionable. 8 understand the September Statement to imply that no knowledgeable person 9 could reasonably contest Vahanian’s stated survival rates and characterization of 10 prior pancreatic cancer research. A jury could therefore find that Vahanian could 11 not truthfully and accurately represent to investors that no “major” studies 12 showed survival rates in excess of 20 months, if in fact several studies, which 13 Plaintiffs have plausibly alleged experts considered to be “major,” did so. 14 Accordingly, the district court erred in dismissing Plaintiffs’ Rule 10b-5 claim 15 based on the September Statement. 3. 16 Here, a jury could March Statement 17 Using the same framework established by Omnicare, we conclude that 18 Plaintiffs have also plausibly pled the misleading nature of the March Statement. 19 On appeal, Plaintiffs focus on the parts of the March call in which Vahanian 20 responded to a question about whether analysts could “make the assumption that Furthermore, the Hidalgo paper that Vahanian cited at the biotech conference where he made the September Statement showed survival rates of 24.1 months and 20.6 months for Stage IA and IB resected pancreatic cancer patients. Plaintiffs did not plead this arguable inconsistency in their complaint, but their other pleadings are sufficient to allege that Vahanian’s statement was misleading. 52 53 Omnicare, 575 U.S. at 189. 21 No. 19-642 1 the control arm is living at 24 or 25 months.”54 Vahanian first stated, “[I]t is our 2 belief that in our study today we don’t have any reason to believe that median 3 survival for these patients will be more than low 20s.”55 This is plainly a statement 4 of opinion. Vahanian then stated, “Nevertheless, our study . . . is designed” for 5 the possibility that the control group survival rate is “in the low 20s.”56 This 6 second statement is one of fact. 7 Both because of its posture as a response to a specific question and its 8 categorical nature, Vahanian’s statement of opinion conveyed, in much the same 9 way as the September Statement, the supposed fact that resected pancreatic cancer 10 patients have survival rates no greater than 20 months. A jury could find that, by 11 saying that NewLink did not have “any reason” to believe that the control group 12 could be living “at 24 or 25 months,” 57 Vahanian implied that there were no 13 competing facts on survival rates, not that he had deemed competing facts less 14 persuasive. 15 survival rates above 20 months are plausibly more than “some fact cutting the 16 other way.” 58 A jury could conclude that the sheer volume of competing facts 17 required Vahanian either to speak less confidently about the control group’s 18 survival rate or to disclose the existence of studies showing survival rates above 19 20 months. We therefore conclude that a jury could reasonably base liability on As with the September Statement, the several studies showing 54 App’x at 723. 55 Id. at 724. 56 Id. 57 Id. 58 Omnicare, 575 U.S. at 189. 22 No. 19-642 1 the March statement of opinion and that the district court erred in dismissing 2 Plaintiffs’ Rule 10b-5 claim. 3 By contrast, we conclude that the March statement of fact (that “our study 4 . . . is designed” for the possibility that the control group survival rate is “in the 5 low 20s”) is not actionable because Plaintiffs have not adequately alleged its 6 falsity. The only evidence Plaintiffs present of the statement of fact’s falsity is the 7 survival rate from NewLink’s Phase 2 trial: 24.1 months. Plaintiffs argue that, 8 based on this Phase 2 survival rate, NewLink could at most have designed the 9 Phase 3 trial with an anticipated 20.1-month survival rate for the control group. 10 But this does not rebut Vahanian’s statement that NewLink designed the Phase 3 11 trial in anticipation of the trial’s control group living “in the low 20s.” 59 After all, 12 20.1 is a figure in the low 20s. 13 methodology that Defendants purported to have selected for the Phase 3 trial does 14 not mean that the methodology was not in fact selected. Although we find the 15 statement of opinion in the March Statement actionable, we agree with Defendants 16 that the statement of fact is not. Moreover, that Plaintiffs disagree with the 17 B. 18 With respect to the Enrollment Statement, the district court found that 19 Plaintiffs had sufficiently alleged falsity but dismissed Plaintiffs’ claim 20 nonetheless because they had not plausibly alleged a causal link between the 21 Enrollment Statement and their financial losses. 22 protestations on appeal, we agree with the district court’s falsity conclusion. 23 Plaintiffs’ Confidential Witness, allegedly a NewLink researcher with access to 59 Whether Plaintiffs Have Adequately Alleged Loss Causation App’x at 724. Despite Defendants’ 23 No. 19-642 1 NewLink executives, claimed to have witnessed the enrollment of ineligible 2 individuals and to have raised concerns about the “design” of the Phase 3 trial 3 with Vahanian.60 4 dismissed those concerns about the “design” of the Phase 3 trial and was “‘really 5 pushy’” about enrolling enough individuals within a particular timeframe. 61 At 6 the pleading stage, these allegations of falsity are sufficiently particular and 7 plausible. The Confidential Witness further claimed that Vahanian 8 We disagree, however, with the district court’s conclusion that Plaintiffs 9 failed to plausibly plead loss causation. The PSLRA “imposes on plaintiffs ‘the 10 burden of proving’ that the defendant’s misrepresentations ‘caused the loss for 11 which the plaintiff[s] seek[] to recover.’” 62 To establish loss causation, Plaintiffs 12 must “demonstrat[e] that ‘the subject of the fraudulent statement or omission was 13 the cause of the actual loss suffered.’” 63 Plaintiffs must allege not only the but-for 14 causation of their losses but also the proximate causation, or that the fraud 15 “concealed something from the market that, when disclosed,” would foreseeably 16 and “negatively affect[] the value of the security.”64 17 sufficiently plead loss causation65 when they allege that their share’s “price fell 60 Id. at 716, 733. 61 Id. at 716. Generally, plaintiffs Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 345–46 (2005) (quoting 15 U.S.C. § 78u-4(b)(4)). 62 In re Vivendi, S.A. Securities Litigation, 838 F.3d 223, 261 (2d Cir. 2016) (quoting Suez Equity Investors, L.P. v. Toronto-Dominion Bank, 250 F.3d 87, 95 (2d Cir. 2001)) (emphasis in Vivendi). 63 64 Lentell v. Merrill Lynch & Co., Inc., 396 F.3d 161, 173 (2d Cir. 2005). This case does not require us to decide whether Rule 9(b)’s heightened pleading standard applies to allegations of loss causation. But see Oregon Public Employees Retirement Fund 65 24 No. 19-642 1 significantly after the truth became known” through an express, corrective 2 disclosure66 or “through events constructively disclosing the fraud” like the 3 “materialization of [the] risk” concealed.67 Here, Plaintiffs argue that the Jefferies 4 & Company Flash Note about Defendants’ GCP violations was a corrective 5 disclosure that expressly revealed the falsity of the Enrollment Statement. In the 6 alternative, they argue that the failure of the Phase 3 trial was “attributable to [the] 7 concealed” improper design of the trial and that the failure therefore 8 constructively disclosed the fraud. 68 We find Plaintiffs’ alternative theory of loss 9 causation persuasive. 10 Turning to Plaintiff’s primary argument, we reject the contention that the 11 Flash Note alone was a corrective disclosure. The Flash Note reported that the 12 GCP noncompliance affected one clinical site with only “a few” subjects and that 13 it was uncertain whether any patients from that site would have to be excluded. 69 14 The Flash Note did not mention improper enrollment. If anything, the Flash 15 Note’s uncertainty about whether patients would have to be excluded could be v. Apollo Group Inc., 774 F.3d 598, 604 (9th Cir. 2014) (characterizing the Second Circuit’s pleading standard for loss causation as a “heightened” standard, insofar as it “requir[es] that plaintiffs show that the loss was both foreseeable and caused by the materialization of the risk concealed by the fraudulent statement”). Plaintiffs have pled “with particularity” how they believe the Enrollment Statement inflated the value of NewLink shares and how the falsity of the Enrollment Statement was publicly revealed, thereby causing Plaintiffs’ financial losses. Thus, our review is focused on whether Plaintiffs’ specific theories of loss causation are plausible. 66 Dura Pharmaceuticals, Inc., 544 U.S. at 347. 67 In re Vivendi, S.A. Securities Litigation, 838 F.3d at 262. 68 Lentell, 396 F.3d at 174. 69 App’x at 824. 25 No. 19-642 1 read to suggest that the GCP noncompliance was something other than improper 2 enrollment. Because the Flash Note did not alert the public to the falsity of the 3 Enrollment Statement, we agree with the district court that it cannot serve as a 4 corrective disclosure. 70 5 Plaintiffs’ alternative argument, that the risk of Defendants’ alleged 6 improper enrollments materialized when the Phase 3 trial failed, is more 7 compelling. In essence, Plaintiffs argue that the improper enrollment foreseeably 8 caused the failure of the Phase 3 trial. We agree that a sufficient number of 9 improper enrollments would naturally and predictably affect a trial’s statistical 10 integrity. And Plaintiffs’ Confidential Witness reported “pervasive” GCP 11 violations, including the enrollment of ineligible individuals.71 That at the end the 12 control group had a higher survival rate than the test group by three months 13 suggests as plausible that the pervasive enrollment of ineligible individuals may 14 have affected the trial results. This suffices because, at this early pleading stage, 15 we do not require “conclusive proof” of the causal link between the fraud and 16 Plaintiffs’ loss.72 17 We find that Plaintiffs have “allege[d] sufficient facts to raise a reasonable 18 inference that” the alleged improper enrollments concealed by the Enrollment 19 Statement affected the Phase 3 trial’s outcome, thereby “caus[ing] an ascertainable See In re Omnicom Group, Inc. Securities Litigation, 597 F.3d 501, 511 (2d Cir. 2010) (requiring a corrective disclosure to “reveal some then-undisclosed fact with regard to the specific misrepresentations alleged in the complaint”). 70 71 App’x at 733. 72 Financial Guarantee Ins. Co. v. Putnam Advisory Co., LLC, 783 F.3d 395, 404 (2d Cir. 2015). 26 No. 19-642 1 portion of [Plaintiffs’] loss.”73 Thus, the district court erred in dismissing Plaintiffs’ 2 Rule 10b-5 claim based on the Enrollment Statement. Discovery will reveal the 3 extent of the improper enrollment and allow the fact-finder to conclude whether 4 the improper enrollment had an impact on the trial results. 5 CONCLUSION 6 7 For the reasons stated above, we AFFIRM the district court’s dismissal of 8 Plaintiffs’ Rule 10b-5 claim regarding the 2013–2016 Assessments, VACATE the 9 district court’s dismissal of Plaintiffs’ Rule 10b-5 claims regarding the September, 10 March, and Enrollment statements, and REMAND for further proceedings 11 consistent with this opinion. 73 Id.
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