IN RE Talis Biomedical Securities Litigation

Background

In an earlier order, the court granted defendants’ motion to dismiss the consolidated amended complaint but allowed plaintiffs to amend. Plaintiffs then filed another amended complaint. They narrowed the case to three categories of allegedly false or misleading statements and material omissions, dropped claims under the Securities Exchange Act, removed statements the court had indicated might be forward-looking or protected by a cautionary doctrine, added three confidential witnesses, and added more specific allegations concerning earlier witnesses.

Defendants again moved to dismiss, arguing that plaintiffs had not fixed the problems identified in the earlier order.

Court’s Analysis

The court held that the amended complaint stated claims under Sections 11 and 15 of the Securities Act. Because the amended complaint asserted only non-fraud Securities Act claims, the court applied Rule 8’s plausibility standard rather than a heightened fraud pleading standard.

Applying that standard, the court found that the complaint plausibly alleged that the registration statement contained false or misleading statements about the ordering and manufacturing of instruments, the accuracy and reliability of the Talis One, and the weakness of Talis’s comparator assay. The complaint also alleged that the Talis One had high invalid rates at the time of the initial public offering, that the comparator assay did not meet objective criteria for “high sensitivity,” and that management knew relevant facts at that time. The court noted, among other allegations, a new allegation from an engineer who had worked on the Talis One prototype that there was no working product at the time of the initial public offering.

The court stated that many of defendants’ challenges raised factual disputes that were not appropriate for resolution on a motion to dismiss. It was also not persuaded that the allegations in the amended complaint were impermissibly inconsistent with the prior complaint. The court further found that defendants’ arguments concerning negative causation were premature. Negative causation was described as an affirmative defense on which defendants had a heavy burden, and the court stated that the issue generally is resolved on summary judgment or at trial because causation is often fact-intensive.

Rulings and Next Steps

The court denied defendants’ motion to dismiss the amended complaint. The court granted defendants’ request for judicial notice of Exhibits 2, 5, and 8 to the Eagan Declaration, denied the balance of defendants’ request, and denied plaintiffs’ request for judicial notice as moot.

The court vacated the scheduled May 3, 2023 hearing because it determined that oral argument was unnecessary. Judge Susan Illston scheduled an initial case-management conference for June 2, 2023, at 2:30 p.m.