Pardi v. Tricida, Inc.

Background

This proposed securities class action concerns Tricida, Inc.’s development of veverimer, a drug intended to slow the progression of chronic kidney disease by treating metabolic acidosis. Plaintiffs allege violations of Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5.

Michael Pardi initially filed the lawsuit. The court later appointed Jeffrey Fiore as lead plaintiff. Fiore’s second amended complaint alleges that investors bought Tricida common stock at artificially inflated prices because of misleading statements and omissions concerning Tricida’s Phase 3 clinical trials, the likelihood of accelerated approval, and communications with the Food and Drug Administration. Tricida filed for bankruptcy and was voluntarily dismissed from the case in March 2023, leaving Gerrit Klaerner as the only remaining defendant. The opinion states that Klaerner was Tricida’s Chief Executive Officer and President when the second amended complaint was filed.

Motion to dismiss

Klaerner moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing that the challenged statements were not materially false or misleading and that Fiore failed to plead a strong inference of scienter. Scienter is the required mental state for the securities-fraud claim, including an intent to deceive or deliberate recklessness. Securities-fraud claims also must meet heightened pleading requirements under Rule 9(b) and the Private Securities Litigation Reform Act.

The court declined to revisit statements it had already found sufficiently pleaded in its earlier order because Klaerner had not properly sought reconsideration. The court therefore considered statements that it had previously found inadequately pleaded, along with new alleged misrepresentations and scienter allegations.

Judicial notice and incorporation by reference

The court granted Klaerner’s request to consider certain public documents, including Securities and Exchange Commission filings, a public regulatory memorandum, a Food and Drug Administration advisory-committee calendar, National Institutes of Health documents, scientific publications, and a public filing from Tricida’s bankruptcy proceeding. The court considered those materials for purposes such as determining what had been disclosed to the market, but did not accept the truth of factual assertions in the materials merely because it took judicial notice of them.

The court also granted the request to consider specified communications between Tricida and the Food and Drug Administration, earnings-call transcripts, and related documents under the incorporation-by-reference doctrine because the complaint referred to them or they formed the basis of the claims. It denied the request as to Exhibit 13 and Reply Exhibit 1 because they were not specifically referenced in the complaint or were not relevant to the court’s analysis.

Analysis of the alleged misrepresentations

The court granted the motion as to Klaerner’s statements characterizing the clinical-trial results and expressing optimism about the drug’s submission, review, and approval. The court treated these as opinion statements because they reflected Klaerner’s judgment about the underlying circumstances. Fiore did not plausibly allege that Klaerner did not honestly hold those opinions or that they lacked a reasonable basis.

The court also rejected the theory that securities law generally required Tricida to publicly disclose every detail of its ongoing discussions with the Food and Drug Administration or to adopt the agency’s views as correct. The court noted that Tricida had disclosed risks, including that the Food and Drug Administration might not accept the foreign clinical data or agree that the trial’s primary endpoint met the required magnitude or statistical significance. In the court’s view, Fiore did not plausibly show that these disclosures gave reasonable investors a materially misleading impression.

The court reached a different conclusion concerning Klaerner’s May 7, 2020 statement that an upcoming advisory-committee meeting had been canceled “in part” because of logistical challenges caused by COVID-19. Fiore alleged that the Food and Drug Administration had instead identified significant problems with the clinical trials and had never cited COVID-19 logistics as a reason for the cancellation. The court held that, construing the allegations in Fiore’s favor, the complaint plausibly alleged that the statement misled investors about the actual reasons for the cancellation and materially changed the overall information available to them.

The court rejected other alleged omissions concerning the number of trial participants who continued into an extension trial and the location of the participants. It found that Tricida had disclosed that most trial participants were outside the United States and had explained that the Food and Drug Administration might not accept such foreign clinical data. The complaint therefore did not adequately allege that the additional omitted information made the affirmative statements false or misleading.

Scienter

The court again found insufficient scienter allegations concerning statements describing the trial location as “Europe,” disclosures about the risks of relying on foreign clinical data, and descriptions of the trials as “multicenter.” The court concluded that the allegations did not create a strong inference that Klaerner intended to mislead investors or acted with deliberate recklessness. The court also noted that the trials were conducted at 47 sites and that Tricida had directed the market to information disclosing the trial locations.

The court found scienter adequately pleaded for the statement about the advisory-committee meeting’s cancellation. Fiore alleged that Klaerner participated in extensive communications with the Food and Drug Administration about trial concerns and their effect on the meeting, that the agency did not identify COVID-19 logistical issues as the reason for cancellation, and that Klaerner selectively disclosed only one of the agency’s concerns. The court held that these allegations plausibly suggested that Klaerner intentionally or recklessly misrepresented the reasons for the cancellation.

Disposition

The court DENIED Klaerner’s motion to dismiss as to Fiore’s claim based on the statement that the advisory-committee meeting was canceled in part because of COVID-19-related logistical challenges.

The court GRANTED Klaerner’s motion to dismiss as to Fiore’s other claims WITHOUT LEAVE TO AMEND because Fiore failed to adequately plead falsity and scienter. The court stated that two categories of statements may proceed: statements about outstanding Food and Drug Administration review issues that had survived the earlier order, and the statement about the advisory-committee meeting’s cancellation. The court also set a telephonic case-management conference for March 26, 2024, and directed the parties to submit a joint case-management statement.