IN RE MYOVANT SCIENCES LTD. SECTION l6 LITIGATION

Background

The plaintiffs, shareholders of Myovant Sciences Ltd., brought a derivative action under Section 16(b) of the Securities Exchange Act of 1934. A derivative action is brought by shareholders on behalf of the company. The plaintiffs alleged that Roivant Sciences Ltd., which owned approximately 45% of Myovant’s common stock, bought additional Myovant shares and then transferred shares to Sumitomo Dainippon Pharma Co., Ltd. as part of a larger transaction. They claimed that the purchases and sales occurred within six months and produced a short-swing profit recoverable under Section 16(b).

Roivant moved to dismiss under Federal Rule of Civil Procedure 12(b)(1), which addresses subject-matter jurisdiction, and Rule 12(b)(6), which addresses whether a complaint states a legally sufficient claim.

Standing

The court rejected Roivant’s argument that the plaintiffs lacked Article III standing. The court relied on Second Circuit precedent holding that a Section 16(b) violation creates a sufficient risk of harm to the interests protected by the statute, including preventing the unfair use of information by corporate insiders. The plaintiffs therefore did not need to allege an additional concrete injury beyond the alleged statutory violation.

Section 16(b) Claim

The court explained that a Section 16(b) claim requires a purchase and a sale of securities by someone who owns more than 10% of a class of the issuer’s securities, with the transactions occurring within six months. The court concluded that the plaintiffs plausibly alleged purchases and sales that could be matched under Section 16(b), even though the purchased and sold shares were not the same shares. The law treats shares as interchangeable for this purpose and requires matching purchases and sales to maximize any recoverable profit.

The court nevertheless concluded that the plaintiffs had not plausibly alleged a profit subject to disgorgement. The market prices when the relevant agreements were made were below the prices Roivant paid for the additional shares. The plaintiffs argued that the actual sale price was higher because of a control premium and because Roivant allegedly shared positive clinical-trial information with Sumitomo. The court found the latter theory unsupported and implausible because the relevant trial results were not known until after the Transaction Agreement was executed. The court also rejected the argument that discovery or expert testimony might later establish a profit, reasoning that unsupported speculation was not enough to justify discovery.

Disposition

The court granted Roivant’s motion to dismiss for failure to state a claim. The court allowed the plaintiffs to file an amended complaint within 30 days of the opinion. The opinion also states that the court considered the parties’ remaining arguments and found them moot or without merit. Judge John G. Koeltl directed the Clerk to close Dkt. Nos. 33 and 37.