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Patel v. Seattle Genetics, Inc.

United States District Court, W.D. Washington, Seattle

May 24, 2018

SAMIT PATEL, individually and on behalf of all others similarly situated, Plaintiff,




         This matter comes before the Court on Defendants' Motion to Dismiss Consolidated Second Amended Complaint and Defendants' Request for Judicial Notice. Dkts. ##34, 36. Plaintiff filed this putative class action on January 10, 2017. Dkt. #1. After the Court appointed a lead plaintiff and lead counsel, (Dkt. #8) Plaintiff filed a Consolidated Amended Complaint (“CAC”). Dkt. #18. The CAC sought remedies, under §§ 10(b) and 20(a) of the Securities Exchange Act of 1934, for Plaintiff and all persons or entities who purchased or otherwise acquired Seattle Genetics, Inc.'s common stock between October 27, 2016, and December 27, 2016 (the “Class Period”). Id. On Defendants' motion to dismiss, the Court found that the CAC did not adequately plead Plaintiff's securities fraud claims, dismissed the CAC, and granted Plaintiff leave to file an amended complaint remedying the deficiencies. Dkt. #30. Plaintiff filed a Consolidated Second Amended Complaint (“CSAC”) with additional factual allegations to support his claims. Dkt. #31. Defendants now seek dismissal of Plaintiff's CSAC, arguing that Plaintiff failed to cure the deficiencies identified by the Court and that the CSAC still fails to adequately state a claim. Dkt. #34. For the reasons stated herein, the Court grants Defendants' Motion to Dismiss Consolidated Second Amended Complaint and denies Defendants' Request for Judicial Notice.

         II. BACKGROUND[1]

         Defendant Seattle Genetics, Inc. is a publicly traded biopharmaceutical company. The “Individual Defendants, ” Clay B. Siegall, Todd E. Simpson, and Jonathan Drachman, were executives at Seattle Genetics, Inc. during the relevant times.[2] Defendants attempted to develop a cancer treatment known as SGN-CD33A (Vadastuximab Talirine) (“33A”) which was intended to treat Acute Myeloid Leukemia (“AML”). 33A, an antibody-drug conjugate (“ADC”), was intended to bind to cancerous cells and deliver a toxic payload to kill the cancerous cells. 33A utilized more potent payloads because it was intended to target and bind only to cancerous cells.

         Defendants had successfully used ADC drug technology in an FDA approved drug (ADCETRIS). But the success of the technology was otherwise limited, with only one other FDA approved ADC drug. Among the failures was Defendants' own SGN-33, an ADC[3] and predecessor to 33A. Defendants abandoned a clinical trial of SGN-33 in 2010 because the drug failed to extend overall survival of patients. Defendants also knew that Pfizer had previously developed and marketed Mylotarg, an ADC, but withdrew it from the market in 2010 because it was not a significantly more effective treatment than standard chemotherapy and resulted in more fatal treatment-related toxicity.

         Before the Class Period, Defendants represented that 33A was a more sophisticated drug that would not suffer from the toxic side-effects that plagued previous ADCs. During the Class Period, Defendants continued to claim that 33A did not share the toxic side effects of Mylotarg and touted the promise of the treatment and the absence of liver disease in clinical trials. Specifically, Plaintiff alleges Defendants made the following misrepresentations:[4]

• On October 27, 2016, Defendant Drachman stated that a clinical study of 33A, in conjunction with a common treatment course (“7”) that already had high complete remission rates, was in “a complicated space” but was “something that we're looking at really closely. We're excited about our interim data.” Dkt. #31 at ¶ 81.
• On October 27, 2016, Defendant Siegall stated that while AML treatment was a competitive business environment “we're very happy with our positioning in this field and think that this could make a big difference for patients. . . . [because 33A] could be very user-friendly from a combination standpoint” with other treatments. Id. at ¶ 83.
• On November 8, 2016, Defendant Siegall stated that clinical trials of 33A combined with hypomethylating agents (“HMAs”), another common AML treatment, were encouraging and that Defendants were “excited with the data, ” the trials had a “low 30 and 60-day mortality rate, ” and Defendants knew that there was “a good safety profile.” Id. at ¶ 85.
• On December 3, 2016, Defendants issued a press release announcing partial results from the clinical study of 33A with 7 treatment and indicated that it “was well-tolerated with a low early mortality rate” and showed “a high rate of remissions in younger newly diagnosed AML patients without significantly adding to the toxicity of treatment.” Defendants included the most common adverse events experienced by patients and indicated that: “No veno-occlusive disease/sinusoidal obstruction syndrome or significant hepatotoxicity was observed on treatment.” Id. at ¶ 87.
• On December 5, 2016, Defendants issued a press release indicating that Defendants were “pleased with the growing body of data demonstrating that [33A] has a promising overall tolerability” Id. at ¶ 89. The press release also presented details of ongoing clinical studies:
• With regard to a clinical study of 33A with HMA treatment, Defendants represented that the results were promising with no 30- or 60-day “treatment-related deaths.” Defendants identified the most common adverse events experienced by 20% or more of patients and did not list toxicity issues.
• With regard to a study of 33A monotherapy, Defendants identified the most common adverse events experienced by 20% or more of patients and did not list toxicity issues.

         Plaintiff alleges that during the Class Period, information known to Defendants unquestionably demonstrated that 33A was highly toxic and that patients exposed to 33A were experiencing serious adverse hepatotoxic events, including death. Despite this knowledge, Defendants either misrepresented or did not disclose 33A's hepatotoxicity risks. As a result, lead Plaintiff Carl Johnson and others acquired Seattle Genetics' common stock during the Class Period at artificially inflated prices.

         On December 27, 2016, Seattle Genetics announced that the FDA had placed holds on Seattle Genetics' pending clinical trials. The announcement specified that “[s]ix patients have been identified with hepatotoxicity, including several cases of veno-occlusive disease, with four fatal events.” The abrupt change of course stunned the market and analysts and stock prices dropped by over 15% on the news, resulting in Plaintiff suffering damages.

         In March, 2017, the FDA lifted its holds on some 33A clinical trials and allowed them to resume with additional risk mitigation measures in place. However, in June 2017, Defendants announced they were abandoning several clinical trials and the FDA ultimately placed a hold suspending all clinical trials of 33A.


         A. Request for Judicial Notice

         Defendants have requested that the Court treat ten documents[5] as incorporated into the CSAC and that the Court take judicial notice of three documents[6] under Federal Rule of Evidence 201. Dkt. #36. Plaintiff objects only to the Court's incorporation of a 2010 press release related to SGN-33[7] and to the Court taking judicial notice of SEC forms showing purchases of stock during the Class Period by Defendants' independent director.[8] Dkt. #37, at 1-2. Plaintiff also argues that the Court should only consider the existence and authenticity of the documents, not the truth of their contents. Id. at 2-4.

         The Court finds that it may properly consider the documents presented by Defendants. United States v. Ritchie, 342 F.3d 903, 908-09 (9th Cir. 2003) (where a complaint incorporates a document, court can “assume that its contents are true for purposes of a motion to dismiss”); Fed R. Evid. 201(b) (court may take judicial notice of facts not subject to reasonable dispute and where fact “can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned”). However, the Court does not find consideration of the documents to be necessary to its decision and therefore denies Defendants' request as moot on that basis.

         B. Legal Standard

         In making a 12(b)(6) assessment, the court accepts all facts alleged in the complaint as true, and makes all inferences in the light most favorable to the non-moving party. Baker v. Riverside County Office of Educ., 584 F.3d 821, 824 (9th Cir. 2009) (citations omitted). However, the court is not required to accept as true a “legal conclusion couched as a factual allegation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). The complaint must contain sufficient facts “to state a claim to relief that is plausible on its face.” Id. at 678. Absent facial plausibility, a plaintiff's claims must be dismissed.” Twombly, 550 U.S. at 570.

         Securities fraud claims are subject to heightened pleading standards under Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act (“PSLRA”). To satisfy Rule 9(b), a claim of fraud must “state with particularity the circumstances constituting fraud.” Fed.R.Civ.P. 9(b). To state a claim under the PSLRA, specifically 15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5, Plaintiff must show: “(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.” Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, 552 U.S. 148, 157 (2008). Defendants argue that Plaintiff has not adequately alleged scienter.

         In the securities fraud context, scienter constitutes “a mental state embracing intent to deceive, manipulate, or defraud.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 319 (2007). For a ...

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