Strezsak v. Ardelyx Inc.

Background

Ardelyx developed tenapanor and sought approval from the Food and Drug Administration for treating high phosphate levels in the blood among dialysis patients with chronic kidney disease. The company’s clinical trials used blood phosphate levels as a substitute measure for a direct patient outcome. According to the complaint, the trials showed that tenapanor reduced phosphate levels less effectively than existing treatments.

The plaintiff alleged that Ardelyx, Mike Raab, Justin Renz, and David Rosenbaum falsely portrayed the company’s interactions with the Food and Drug Administration as positive and suggested that approval of tenapanor was nearly assured. On July 19, 2021, Ardelyx disclosed that the agency had identified deficiencies preventing the drug application from moving forward. The complaint alleged that Ardelyx’s share price then fell sharply. The plaintiff brought claims under Section 10(b) of the Securities Exchange Act and Rule 10b-5, which prohibit material deception in connection with securities transactions, and under Section 20(a), which concerns control-person liability.

Prior Proceedings and Pleading Standard

The court had previously dismissed an earlier complaint because the plaintiff had not adequately alleged that the defendants misled investors about the tenapanor application. The plaintiff then filed a third amended complaint, and the defendants moved to dismiss it under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not adequately state a legal claim.

Securities-fraud claims must satisfy heightened pleading requirements under Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act. The plaintiff therefore had to allege the claimed false statements and the reasons they were false with particularity.

The court granted the defendants’ request to incorporate certain documents into the complaint by reference because the complaint extensively relied on them. The court also continued to take judicial notice of specified public documents, including regulatory filings and stock-price information, for the purpose of considering what information was disclosed to the market, without assuming that all facts asserted in those documents were true.

Analysis

The plaintiff relied on three categories of allegations concerning previously challenged statements. First, he pointed to FDA letters and discussions suggesting that approval depended on showing a treatment effect comparable to existing therapies or demonstrating that tenapanor’s smaller effect was clinically relevant. The court held that these allegations had already appeared in the earlier complaint or in documents previously incorporated by reference, so they did not provide new facts supporting a different result.

Second, the plaintiff relied on allegations that the trials produced an effect only one-third to one-half as large as the effect of existing therapies. The court likewise found that these allegations had already been presented and did not alter its earlier conclusion.

Third, the plaintiff relied on an unidentified Ardelyx official’s interpretation of the March 2020 meeting with the Food and Drug Administration. The court held that the complaint did not describe the official’s job title, responsibilities, employment information, or other details showing that the person was in a position to know the information alleged. The court therefore did not find those allegations sufficiently reliable to establish falsity.

The plaintiff also challenged two risk disclosures in Ardelyx’s March 2021 annual report. The disclosures warned that the agency might delay, limit, or deny approval and that commercial success depended on the drug’s safety and effectiveness profile being satisfactory to regulators. The court held that the disclosures communicated the general substance of the allegedly omitted information. It also held that the plaintiff had not alleged particularized facts showing that the warned-of risks had already materialized when the disclosures were made, because the agency had not yet communicated a determination about the application.

Disposition

The court held that the plaintiff did not adequately plead a Section 10(b) claim. Because the Section 10(b) claim failed, the related Section 20(a) claim also failed. The court granted the motion to dismiss without further leave to amend, directed the clerk to enter judgment in favor of the defendants, and closed the file.