Cachia v. BELLUS Health Inc.

Background

Carl D. Cachia brought a proposed class action against BELLUS Health Inc.; Roberto Bellini; Francois Desjardins; Dr. Catherine Bonuccelli; Dr. Jacky Smith; and several securities underwriters. Cachia alleged that the defendants misled investors about BELLUS’s RELIEF clinical trial for BLU-5937, a drug being developed to treat chronic cough. He asserted fraud-based claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and strict-liability claims under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933.

BELLUS’s trial used a minimum baseline cough-frequency requirement of 10 coughs per hour. Cachia alleged that the defendants misleadingly compared RELIEF with competitors’ clinical trials while failing to disclose the importance of patients’ cough frequencies and the risk that RELIEF would not show the drug’s effectiveness. BELLUS later announced that RELIEF was unsuccessful, and the company’s stock price fell, according to the complaint.

Motions and Legal Standard

The BELLUS defendants and Dr. Smith moved to dismiss the first amended complaint under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. Cachia also sought permission to amend the complaint. For purposes of the dismissal motions, the court treated the complaint’s factual allegations as true and considered whether they plausibly supported relief. The court also applied heightened pleading requirements for fraud claims, including the requirement that securities-fraud allegations identify misleading statements and facts supporting a strong inference that the defendants acted with the required wrongful state of mind, known as scienter.

Court’s Analysis

The court held that Cachia had not identified a material misrepresentation or omission. It concluded that the challenged descriptions of RELIEF as similar to competitors’ trials were accurate in the relevant respects: the trials involved drugs targeting P2X3 receptors and used randomized, double-blind, placebo-controlled designs. The court emphasized that BELLUS had disclosed RELIEF’s 10-coughs-per-hour enrollment threshold. Because that information was publicly disclosed, the court found that investors could assess the difference between RELIEF and the competitors’ trials.

The court also held that securities law could not be used, with the benefit of hindsight, to second-guess the design or management of a clinical trial. It treated statements about the anticipated success of RELIEF as opinions about an untested drug and trial, rather than actionable factual guarantees. The court noted that BELLUS had qualified its expectations by stating that BLU-5937’s clinical effectiveness was not yet supported by data.

Separately, the court held that the complaint did not plausibly allege scienter for the Exchange Act claims. Cachia argued that BELLUS had a motive to mislead investors because it needed funding to continue developing the drug. The court found that allegation too general and noted that BELLUS was still far from possible regulatory approval. The court also found no facts showing that the defendants consciously or recklessly knew their statements were misleading.

Disposition

The court granted the defendants’ motions to dismiss for failure to state a claim. It denied Cachia’s motion for leave to amend because the proposed amendments would be futile: they did not add a misrepresentation or cure the lack of plausible scienter allegations. The court dismissed Cachia’s claims in their entirety, directed the Clerk of Court to close the pending motions, and closed the case. The opinion does not state that the dismissal was with or without prejudice.

Classification

This is classified as a procedural order because the case was resolved through Rule 12(b)(6) dismissal for failure to state a claim, even though the court discussed the alleged securities violations and why the pleadings were insufficient.