Xu v. FibroGen, Inc.

Background

Peifa Xu filed a proposed securities-fraud class action against FibroGen, Inc. and other defendants. The proposed class consists of investors who purchased FibroGen stock from October 2017 through April 2021. The complaint asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5.

The complaint alleges that FibroGen made materially false or misleading statements, or failed to disclose material adverse information, about cardiovascular safety analyses for roxadustat. According to the complaint, FibroGen disclosed in April 2021 that earlier analyses included post-hoc changes to stratification factors. After those changes were removed, the company could no longer represent that roxadustat was safer than epoetin alfa for treating anemia connected to chronic kidney disease. The complaint alleges that FibroGen’s share price fell $14.90, or 43 percent, over the following two days.

Four similar actions were later filed by purchasers of FibroGen securities in the same district. The court considered motions by Vicente Sepulveda; the Employees’ Retirement System of the City of Baltimore, the City of Philadelphia Board of Pensions and Retirement, and the Plymouth County Retirement Association, collectively called the Retirement Systems; and Stefano Branca and Giuliana Mollo. The motions sought consolidation, appointment as lead plaintiff, and approval of lead counsel. A lead plaintiff is the class member or group that directs the litigation on behalf of the proposed class.

Consolidation

The court applied Federal Rule of Civil Procedure 42(a), which permits consolidation when actions share common legal or factual questions. The movants agreed that the five related actions should be consolidated because they involved substantially identical legal and factual issues, common defendants, and similar allegations concerning FibroGen’s statements about roxadustat. FibroGen and the individual defendants did not oppose consolidation.

The court granted the plaintiffs’ motions to consolidate the related actions, finding that consolidation would reduce duplicative work, save expense, and move the proceedings forward more efficiently.

Appointment of Lead Plaintiffs

The Private Securities Litigation Reform Act requires the court to presume that the most adequate lead plaintiff is the eligible class member or group with the largest financial interest that also satisfies the relevant requirements of Federal Rule of Civil Procedure 23. The Ninth Circuit’s three-step process requires the court to determine whether the notice requirements were met, compare the potential plaintiffs’ financial interests, and then consider whether competing movants rebut the leading candidate’s initial showing of typicality and adequacy.

The court found that the required notice was published within 20 days after the complaint was filed and that the competing motions were filed within 60 days after publication. It therefore found that the procedural requirements were satisfied.

Using the parties’ loss calculations, the court found that the Retirement Systems had the largest financial interest. The Retirement Systems calculated aggregate losses of more than $1.3 million, compared with approximately $946,647 for Sepulveda and approximately $459,057 for Branca and Mollo. The court also found that the assignment of claims from the Fire & Police Employees’ Retirement System of the City of Baltimore to the Baltimore Fund was facially valid. Even without counting the assigned losses, the Retirement Systems would still have had losses exceeding $1 million and the largest financial interest.

The court found that the Retirement Systems had made an initial showing of typicality and adequacy. Typicality asks whether the proposed lead plaintiff’s claims and injuries are similar to those of other class members. Adequacy asks whether the proposed lead plaintiff and its counsel have conflicts with the class and will prosecute the case vigorously. The court found no reason to believe that the Retirement Systems’ losses were atypical.

The court also rejected the argument that the Retirement Systems were an improper lawyer-created group. It relied on the group’s prior familiarity through professional organizations, the members’ sophistication and experience as institutional investors, their experience in complex litigation, and their representation that they had sought to work with other institutional investors and independently decided to pursue joint appointment. The court further found that the group had continued communicating about litigation procedures and cost controls. Although the group’s proposed method for resolving disagreements was somewhat vague, the court concluded that the group’s benefits to the class outweighed those deficiencies.

The court granted the Retirement Systems’ motion for appointment as lead plaintiffs and denied Sepulveda’s and Branca and Mollo’s corresponding motions.

Approval of Lead Counsel

Under the Private Securities Litigation Reform Act, the court must approve the lead plaintiff’s choice of class counsel. The court generally defers to a reasonable choice unless the choice is irrational or raises serious concerns about self-dealing or conflicts of interest.

The court found that Saxena White was fit to serve as lead counsel. It considered the firm’s reported recoveries in securities cases, its work in a derivative action involving Wells Fargo & Company, and the absence of any showing that the firm was inadequate to represent the proposed class.

The court granted the Retirement Systems’ motion to approve Saxena White as lead counsel and denied Sepulveda’s and Branca and Mollo’s corresponding motions.

Other Directions and Disposition

The court ordered the plaintiffs to file a consolidated amended complaint within 30 days of the order. It also directed plaintiffs’ counsel to submit a protocol for controlling fees and costs. The order disposed of Docket Nos. 22, 29, and 40.

This order resolved consolidation, lead-plaintiff appointment, and lead-counsel selection. It did not decide the merits of the securities-fraud allegations.