Bartelt v. Affymax, Inc. et al

Filing 65

ORDER GRANTING IN PART AND DENYING IN PART 47 MOTION TO DISMISS CONSOLIDATED AMENDED COMPLAINT by Hon. William H. Orrick. The defendants' motion is GRANTED regarding Count I (violations of Section 10(b) and SEC Rule 10b5) against individual defendants Cross, Duliege, and Knapp. The motion is GRANTED regarding Count I (violations of Section 10(b) and SEC Rule 10b5) against Affymax and individual defendant Orwin based on the August 2012 and November 2012 statements. The motion is GRANTED regarding Count II (violation of Section 20(a)) against all defendants. The Consolidated Amended Complaint is DISMISSED WITHOUT PREJUDICE with regard to the claims identified above. Any amended complaint shall be filed within 30 days of this Order. The motion is DENIED regarding Count I (violations of Section 10(b) and SEC Rule 10b5) against Affymax and individual defendant Orwin based only on the February 12, 2013 statements regarding the safety of Omontys. (jmdS, COURT STAFF) (Filed on 1/21/2014)

1
2
3
4
5
6
7

UNITED STATES DISTRICT COURT

8

NORTHERN DISTRICT OF CALIFORNIA

9
10

TRICIA M. BARTELT, et al.,

Case No. 13-cv-01025-WHO

Plaintiffs,
11
United States District Court
Northern District of California

v.
12
13

AFFYMAX, INC., et al.,
Defendants.

ORDER GRANTING IN PART AND
DENYING IN PART MOTION TO
DISMISS CONSOLIDATED AMENDED
COMPLAINT
Re: Dkt. Nos. 47, 48

14
15
16

INTRODUCTION

17

On July 22, 2013, the plaintiffs filed a Consolidated Amended Complaint against defendants

18

Affymax Inc. and four of its senior executives and directors, John A. Orwin, Herbert C. Cross,

19

Anne-Marie, Duliege, and Jeffrey H. Knapp. Dkt. No. 45. The defendants have moved to dismiss

20

the Consolidated Amended Complaint. Dkt. No. 47. For the reasons stated below, the motion to

21

dismiss is GRANTED IN PART and DENIED IN PART. This order also resolves the defendants’

22

request for judicial notice, as stated below. Dkt. No. 48
BACKGROUND1

23
24

Defendant Affymax is a biopharmaceutical company whose primary product is the drug

25

Omontys. During the relevant period, defendant Orwin served as Affymax’s Chief Executive

26

Officer and a director; defendant Cross served as Chief Financial Officer; defendant Duliege

27
28

1

The Court assumes the truth of the allegations in the Consolidated Amended Complaint.

1

served as Chief Medical Officer; and defendant Knapp served as Chief Commercial Officer. The

2

plaintiffs allege that Affymax and the individual defendants violated federal securities laws by

3

making materially false and misleading statements about Omontys, which was eventually recalled

4

in the face of serious safety concerns, causing Affymax’s stock to plummet. The plaintiffs seek to

5

represent a class of all purchasers of Affymax common stock between August 8, 2012 and

6

February 22, 2013 (the “class period”).

7

Omontys is in a class of drugs known as erythropoiesis stimulating agent (“ESAs”). Like

8

other ESAs, Omontys treats anemia by stimulating the production of red blood cells. Other ESAs

9

for treating anemia include Epogen, sold by Amgen, and Procrit, sold by Johnson & Johnson. On
March 27, 2012, the Food and Drug Administration (“FDA”) approved Omontys for patients on

11
United States District Court
Northern District of California

10

dialysis for treatment of anemia due to chronic kidney disease. ¶ 63.2 Because Omontys is an

12

ESA, the FDA required it to carry a “black-box warning,” the highest level of warning that the

13

FDA can require, which warned of death and other serious risks. See 21 C.F.R. 201.57(c)(1.) The

14

“black-box warning” stated:

15
16
17
18
19
20
21
22

Dkt. No. 49-19 (Kaban Ex. 19).3
On July 12, 2012, Affymax issued a press release announcing that it had entered into a

23
2

24
25
26
27
28

Unless otherwise noted, all paragraph citations (¶) are to the Consolidated Amended
Complaint.
3
The Court GRANTS the defendants’ request to take judicial notice of the package insert
approved by the FDA for Omontys (Kaban Ex. 19, Dkt. No. 49-19), including the “black-box
warning.” Dkt. No. 48. The plaintiffs concede that the “FDA package inserts” (Kaban Exs. 1921) “are incorporated by reference or relied upon in the CAC.” Dkt. No. 54 at 2. Plaintiffs
therefore “do not object to judicial notice for these [FDA package inserts] for the limited purpose
of what they state and when they were filed.” Id. The request for judicial notice is DENIED AS
MOOT to the extent that the exhibits at issue are not cited in this Order.
2

1

supply agreement with leading dialysis provider Fresenius Medical Care, ending in April 2013.

2

¶ 69. The press release reported that “Fresenius Medical Care North America has stated that its

3

initial plans are to adopt the product into more than 100 dialysis centers in the U.S. over the next

4

few weeks, and then, based on its experience, evaluate the potential to expand to additional

5

centers.” Id. Affymax’s stock price increased 16% after the press release. ¶ 70. The plaintiffs

6

allege that Affmyax’s agreement with Fresenius accounted for the majority of Affymax’s sale of

7

Omontys during the class period. ¶ 3.
The plaintiffs allege that “in August, September, and October of 2012, some Affymax

8
9

sales representatives selling Omontys to dialysis clinics in Texas, Oklahoma, Mississippi,
Louisiana, and Alabama filed Adverse Event reports concerning serious reactions with Omontys.”

11
United States District Court
Northern District of California

10

¶ 76.

12

Affymax held a conference call on August 8, 2012 with investors, analysts and other

13

market participants regarding its Q2 2012 financial results. The individual defendants participated

14

in the conference call where “they reiterated the Company’s Q2 2012 guidance and its continued

15

success with Omontys (and in particular its long-term contracts with Fresenius) due to the

16

product’s safety and efficacy.” ¶ 87. The plaintiffs allege that by this time Affymax and the

17

individual defendants “were already aware of the adverse events caused by their most profitable

18

drug, Omontys. They had already received reports of allergic reactions in patients associated with

19

using the drug which had been forwarded to the FDA.” ¶ 88. The plaintiffs allege that the

20

defendants “failed to report this to the market because they knew of the serious implications this

21

could have on their Company’s ability to operate without the profits from Omontys. They also

22

knew that any reported adverse reactions would affect their long-term relationship with Fresenius

23

who would halt their pilot program and discontinue use of Omontys.” Id.

24

In October 2012, Affymax requested a change in Omontys’s label to warn “physicians and

25

patients about the potential for allergic reactions.” ¶ 78. The plaintiffs’ Confidential Witness 2, a

26

Director of Sales Training at Affymax from August 2011 to October 2012, states that Affymax’s

27

Manager of Sales Training and its Vice President of Clinical Development told Affymax

28

employees during a conference call that the label change “was not a big deal.” ¶ 78.
3

1
2
3
4
5
6
7
8
9
10

United States District Court
Northern District of California

11
12
13
14
15
16
17
18
19

Affymax disclosed the proposed label change during an investor conference call on
November 8, 2012. ¶ 94. Defendant Orwin, Affymax’s CEO, said:
Since launch thousands of patients have received OMONTYS in the
post-marketing setting. As anticipated, this broad experience has
been helpful in further informing real-world use of the compound
where infrequent, but sometimes serious, allergic reactions have
been reported. To that end, we have proposed to the FDA, and have
now updated our label to include, additional language regarding
allergic reactions similar to that which is found in the existing labels
for other ESAs. . . . allergic reactions are mentioned [on the original
label], but they’re not described in the same sort of wholesome way
that they are in other ESAs, which is what led us, based on the
experience and reported events, however infrequent, to look at that
against what was in the label and decide that it made sense for us to
bring the language into our label in line with what exists for the
other ESAs.
Id. Similarly, defendant Duliege, Affymax’s Chief Medical Officer, advised:
Now that we have thousands of patients, literally more than 10,000
patients, we felt it was prudent to update our label with the new
information that we have accumulated as part of our
pharmacovigilance severance program.
Specifically, the report of allergic reactions that you mentioned in
the label continues to be infrequent and a result on treatment.
However, some of these reactions have been more serious. Some of
the most recent reaction (inaudible) have been more serious and this
is what we have included as information in the label to bring, as you
said, John, our label in line with the existing label of other ESAs.
So, there is now a new contraindication in our label which has been
added and it’s OMONTYS is contraindicated in patients with
serious allergic reactions to OMONTYS. And that’s also reflected in
the warning and precaution sections of our label.

20

Id. An investment analyst asked “Just like the Epogen label?” to which Duliege responded

21

“That’s right.” Id.

22

The plaintiffs allege that the “Defendants misled analysts and investors by claiming that

23

the requested label change was to keep up with competition; e.g. Epogen’s label, rather than

24

admitting to their own reports of serious allergic reactions causing hospitalizations and death.” ¶

25

95. Specifically, the plaintiffs allege that the defendants “did not disclose the full extent of the

26

serious allergic reactions caused by Omontys, including death; that reports of adverse reactions

27

were mounting; and that Affymax had made a request to the FDA for a label change primarily to

28

warn doctors of serious allergic reactions that could occur with the injection of Omontys rather
4

1
2
3

than making its label consistent with its competitor’s label. Id.
The FDA approved Omontys’s label change on December 4, 2012. The new label warned
that the use of Omontys could cause Serious Allergic Reactions. The label stated, in part:

4
5
6
7
8
9
10

United States District Court
Northern District of California

11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

¶ 100. Affymax did not issue a press release to announce the label change, even though it “had
received many reports of adverse reactions by patients, including anaphylactic reactions on the
first use of Omontys causing death and other serious injuries requiring hospitalization” by this
time. ¶¶ 102-03. As a result, according to the plaintiffs, the “label change was unknown to the
market and had no significance to shareholders.” ¶ 102.
On February 12, 2013, Affymax and the individual defendants conducted another
conference calls with analysts where the defendants “made material representations and omissions
. . . continuing to tout the product’s safety and efficacy while omitting to disclose the serious
problems it had with Omontys and the imminent recall that was about to occur.” ¶ 106.
Defendant Orwin was asked to “provide a little bit more color on the Fresenius agreement, and
what kind of information they think they will need in order to make a decision to go wider with
Omontys.” Id. In response, Orwin stated
Obviously, the safety and efficacy were established, and are
typically best established in a comparative Phase 3 program.
Fortunately for us, we had a very large program, and a very
comprehensive evaluation of both safety and efficacy. But I think
what they want to see is that they could replicate those kinds of
results in their patient population, and that by treating 10,000
patients, and looking at patients as their own controls, but also
looking at a matched cohort, they could learn a lot about the
performance of Omontys in their patient population, before making
a decision to utilize the product more broadly. . . . So, I think what
they need to see is they need to see how the product performs in
their population. Safety and efficacy, of course, always, but even
more importantly, the dose efficiency in their population, since
safety and efficacy were already fairly well-established.”
Opp. at 13 (citing CAC. ¶ 106).
The next day, February 13, 2013, Fresenius announced that it would “pause further
5

1

expansion of the Omontys pilot that began in late July 2012.” ¶ 108. A Form 8-K Affymax filed

2

with the SEC the same day included a letter from Fresenius to Affymax. The letter stated, in part:

3

We are writing to provide an interim update on the status of our pilot
to assess the use of Omontys in the [Fresenius] dialysis facilities. . . .
The assessment includes efficacy, safety and logistics related to this
agent that was approved for use by the Food and Drug
Administration at the end of March 2012.

4
5
6

We will now pause expansion of the pilot that began in late July
2012. We have accumulated experience in more than 56,600
administrations in over 18,000 unique patients. . . . To date, we have
seen infrequent allergic reactions in our patient population receiving
their first dose of Omontys. Most of these reactions have been mild,
but a small number have been serious. The rate of allergic reactions
has been on the order of 1:1000 patients receiving a first dose of
Omontys. The vast majority of patients who are receiving the
medication on an ongoing monthly basis are tolerating it well.

7
8
9
10

United States District Court
Northern District of California

11

We are now working to analyze the full set of efficacy and safety
profile information and feel that the current scale of our experience
with use of the drug is adequate to complete this analysis. . . . For
patients on Omontys, we recommend continued use of the agent as it
has been providing effective anemia management. We plan to pause
the rollout to additional facilities and patients at this time until the
analyses are complete and reported to our medical staff. As many of
you have become quite comfortable with the medication, physicians
and facilities that have been using Omontys who wish to continue
prescribing it for new patients may choose to do so.

12
13
14
15
16
¶ 108.
17
18

The plaintiffs allege that the Fresenius pilot program was paused to “investigate the drug’s
safety and efficacy due to patients having serious allergic reactions.” ¶ 12. Affymax stock closed

19
down approximately 7% on February 14, 2013, following Fresenius’s announcement. ¶ 109. The
20
21
22

plaintiffs allege that “without knowing the full truth about Omontys[’s] lack of safety, analysts
were still positive on the stock.” Id. Investment firm Piper Jaffray issued an analyst report on
February 20, 2013 which concluded that the firm “remain[s] bullish that the companies [Affymax

23
and Fresenius] will sign a meaningfully larger supply agreement, despite the recent pause in
24

Fresenius’s pilot program.” ¶ 110.

25
Affymax announced a voluntary recall of Omontys on February 23, 2013. ¶ 111.
26

Affymax issued a press release stating that it “decided to voluntarily recall all lots of Omontys . . .

27
as a result of new postmarketing reports regarding serious hypersensitivity reactions, including
28
6

1
2
3
4
5
6

anaphylaxis, which can be life-threatening or fatal.” ¶ 111. The press release also stated that:
To date, fatal reactions have been reported in approximately 0.02%
of patients following the first dose of intravenous administration. . . .
The rate of overall hypersensitivity reactions reported is
approximately 0.2% with approximately a third of these being
serious in nature including anaphylaxis requiring prompt medical
intervention and in some cases hospitalization. The companies are
actively investigating these cases. In the meantime, dialysis
organizations are instructed to discontinue use.
The Wall Street Journal reported on the recall on February 25, 2013, writing that “Affymax

7
Inc. shares plunged 85% in midday trading Monday after reports of severe allergic reactions in
8
some kidney-disease patients, including at least five deaths, prompted the company to recall its
9

antianemia drug.” ¶ 112. The Wall Street Journal also reported that “Chief Executive John A.

10
Orwin said the company moved to pull the drug, called Omontys, after executives learned of three
11
United States District Court
Northern District of California

deaths in February tied to hypersensitivity, a sometimes fatal condition that can arise when the
12
body’s immune system reacts to drugs or other foreign intrusions, like bee stings. Those fatalities
13
followed two earlier deaths that observers had associated more closely with cardiovascular
14

problems rather than allergic reactions.” Id. According to the Wall Street Journal, “the recall

15
shocked investors who had seen encouraging signs that the antianemia drug was making inroads
16
as a cheaper and more convenient alternative to Amgen Inc.’ s blockbuster Epogen, which holds a
17
virtual monopoly in treating anemia in patients receiving dialysis.” Id.
18

The Wall Street Journal also reported that “[t]he drug’s prospects looked far brighter less

19
than two weeks ago, when [Fresenius] sent a letter suggesting that doctors comfortable with the
20
treatment could continue administering it while Fresenius paused a pilot Omontys program to pore
21
22

over its safety and effectiveness data.” The Wall Street Journal also stated that Fresenius “earlier
this month reported a ‘small number’ of allergic reactions but didn’t mention any patient deaths.”

23
According to an analyst from Robert W. Baird—the same analyst that, in November 2012,
24
25
26

asked whether the new Omontys label was “[j]ust like the Epogen label”—the number of Omontys
hypersensitivity incidents “was 100-fold greater than Amgen’s Epogen and the death rate was 8.5
times higher.” Id.

27
The plaintiffs allege that Affymax’s and the individual defendants’ rosy statements about
28
7

1

Omontys’s outlook, without disclosing the serious adverse reactions associated with Omontys,

2

violated Sections 10(b) of the Exchange Act and SEC Rule 10b-5 (17 C.F.R. §240.10b-5). The

3

plaintiffs also allege that the individual defendants are liable as control persons under Section

4

20(a) for Affymax’s violation of Section 10(b).

5
6
7

LEGAL STANDARD
A. Federal Rule of Civil Procedure 12(b)(6)
A motion to dismiss for failure to state a claim under Rule 12(b)(6) tests the legal

8

sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). A complaint

9

“must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible
on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A claim is facially plausible when it

11
United States District Court
Northern District of California

10

“allows the court to draw the reasonable inference that the defendant is liable for the misconduct

12

alleged.” Id. In considering whether the complaint is sufficient to state a claim, the court accepts

13

as true all of the factual allegations contained in the complaint. Id. However, the court need not

14

“accept as true allegations that contradict matters properly subject to judicial notice or by exhibit”

15

or “allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable

16

inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) (internal quotation

17

marks and citations omitted).

18

B. Pleading Requirements in Securities Fraud Actions

19

Section 10(b) of the Exchange Act makes it unlawful “for any person . . . to use or employ,

20

in connection with the purchase or sale of any security . . . any manipulative or deceptive device or

21

contrivance in contravention of such rules and regulations as the Commission may prescribe[.]” 15

22

U.S.C. § 78j(b). SEC Rule 10b-5, promulgated under the authority of Section 10(b), in turn,

23

provides that “[i]t shall be unlawful for any person . . . (a) To employ any device, scheme, or

24

artifice to defraud, (b) To make any untrue statement of a material fact or to omit to state a

25

material fact necessary in order to make the statements made, in light of the circumstances under

26

which they were made, not misleading, or (c) To engage in any act, practice, or course of business

27

which operates or would operate as a fraud or deceit upon any person, in connection with the

28

purchase or sale of any security.” 17 C.F.R. § 240.10b-5. Thus, the basic elements of a Rule 10b8

1

5 claim are: (1) a material misrepresentation or omission of fact, (2) scienter, (3) a connection with

2

the purchase or sale of a security, (4) transaction and loss causation, and (5) economic loss. In re

3

Daou Systems, Inc. 411 F.3d 1006, 1014 (9th Cir. 2005).

4

A statement or omission is misleading regarding a material fact “when there is ‘a

5

substantial likelihood that the disclosure of the omitted fact would have been viewed by the

6

reasonable investor as having significantly altered the ‘total mix’ of information made available.’”

7

Matrixx Initiatives, Inc. v. Siracusano, 131 S. Ct. 1309, 1318 (2011) (citing Basic Inc. v. Levinson,

8

485 U.S. 224, 231-32 (1988)). “Scienter may be established, by showing that the defendants knew

9

their statements were false, or by showing that defendants were reckless as to the truth or falsity of

10

their statements.” Gebhart v. S.E.C., 595 F.3d 1034, 1041 (9th Cir. 2010).

United States District Court
Northern District of California

11

To establish a prove a prima facie case violation of Section 20(a), plaintiff must prove: (1)

12

a primary violation of federal securities laws and (2) that the defendant exercised actual power or

13

control over the primary violator (Affymax). Howard v. Everex Sys., Inc., 228 F.3d 1057, 1065

14

(9th Cir. 2000).

15
16

C. Federal Rule of Civil Procedure 9(b) and the PSLRA
Under the Private Securities Litigation Reform Act (“PSLRA”), securities fraud claims

17

must satisfy the heightened pleading standards set forth in Rule 9(b) of the Federal Rules of Civil

18

Procedure and the PSLRA itself. Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 990 (9th

19

Cir. 2009). Rule 9(b) requires a plaintiff alleging fraud or mistake to “state with particularity the

20

circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). The PSLRA requires a

21

plaintiff alleging securities fraud to “plead with particularity both falsity and scienter.” Zucco

22

Partners, 552 F.3d at 990-91; accord Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308,

23

314 (2007). With respect to falsity, the complaint must “specify each statement alleged to have

24

been misleading, [and] the reason or reasons why the statement is misleading.” 15 U.S.C. § 78u–

25

4(b)(1). With respect to scienter, the complaint must “state with particularity facts giving rise to a

26

strong inference that the defendant acted with the required state of mind.” 15 U.S.C. § 78u–

27

4(b)(2).

28

To satisfy the requisite state of mind element, “a complaint must allege that the defendant[
9

1

] made false or misleading statements either intentionally or with deliberate recklessness.” Zucco,

2

552 F.3d at 991 (citation omitted). Facts showing mere recklessness, or a motive to commit fraud

3

and opportunity to do so, provide some reasonable inference of intent, but are not sufficient to

4

establish a strong inference of deliberate recklessness. In re VeriFone Holdings, Inc. Sec. Litig.,

5

704 F.3d 694, 701 (9th Cir. 2012) (citation omitted). As such, the Court “must consider plausible

6

nonculpable explanations for the defendant’s conduct, as well as inferences favoring the plaintiff.”

7

Tellabs, 551 U.S. at 323–24. In evaluating whether a complaint satisfies the “strong inference”

8

requirement, courts must consider the allegations and other relevant material holistically, not

9

“scrutinized in isolation.” VeriFone, 704 F.3d at 701.

10

United States District Court
Northern District of California

11

DISCUSSION
The plaintiffs allege three categories of misleading statements: statements regarding i)

12

Fresenius expanding use of Omontys; ii) the safety and efficacy of Omontys; and iii) the reasons

13

for the change to the label of Omontys. The allegedly misleading statements identified by the

14

plaintiffs occurred on August 8, 2012 (¶ 87), November 8, 2012 (¶ 94) and February 12, 2013 (¶

15

106). See also Dkt. No. 53 (“Opp.”) at 11-13 (plaintiffs’ opposition brief identifying the

16

misleading statements). All three categories rely on the allegation that Affymax and the individual

17

defendants “knew that there were serious adverse reactions to Omontys which negated the

18

Company’s statements about the drug’s safety and efficacy” but nonetheless “continued to

19

disseminate materially false and misleading statements regarding Omontys, causing their financial

20

statements and projections to be materially false and misleading, in violation of the Exchange

21

Act.” ¶ 10; see also id. (“Defendants knew, or recklessly disregarded the fact, that as early as

22

August 2012, the use of Omontys was linked to allergic reactions and respiratory distress.”). The

23

substance and materiality of the defendants’ knowledge of adverse reactions associated with

24

Omontys at the time of the statements identified by the plaintiffs is therefore central to the

25

plaintiffs’ claims.

26

A. August 8, 2012 statements

27

The plaintiffs allege that the defendants’ August 8, 2012 statements mislead the market

28

about the safety and efficacy of Omontys and about Fresenius’s supposed continuing and
10

expanding adoption of Omontys. ¶¶ 87, 106; Opp. (“Opp.”) at 13. The plaintiffs allege that

2

defendant Duliege’s statement that “we haven’t heard anything of concern back. It continues to

3

progress as planned, so no nothing specific that way,” falsely represented that Omontys did not

4

present any safety concerns, even though “Defendants were well aware that the injection of

5

Omontys caused patients severe allergic reactions, resulting in hospitalization and death.” Opp.

6

at 13 (citing ¶ 87). The plaintiffs likewise allege that defendant Cross mislead investors when he

7

stated “I think the increase in Q2 was very consistent with our expectations and so, I don’t--we

8

don’t have any reason to update our guidance at this point.” Id. In addition, according to the

9

plaintiffs, at this time the defendants already knew that Fresenius’s patients would likely convert

10

back to Epogen based on the adverse reactions associated with Omontys and, consequently, the

11
United States District Court
Northern District of California

1

defendants mislead the market by describing Fresenius as “converting” to Omontys, rather than

12

merely considering Omontys on a pilot program basis. ¶¶ 87, 106; Opp. at 11-13.

13

In response, the defendants argue that the first adverse event was reported to the FDA on

14

August 14, 2012—a week after the statements at issue—and, consequently, the plaintiffs do not

15

adequately allege that these statements were false when made or that the defendants had the

16

requisite scienter. Dkt. No. 58 at 4.

17

The Court agrees that the timing of the first reported adverse events precludes plaintiffs’

18

claims based on the August 8, 2012 statements. Exhibit 1 to the plaintiffs’ opposition brief lists

19

the adverse events associated with Omontys reported to the FDA. Dkt. No. 53-1 (the “adverse

20

events report”).4 Consistent with the adverse events report (page 4), the parties agree that the first

21
4

22
23
24
25
26
27
28

Per 21 C.F.R. Section 314.80(a), after a drug has gone to market, the drug manufacturer
is required to report adverse events experienced by patients using the drug to the FDA. Adverse
events that are life-threatening or result in death or hospitalization must be reported within 15
calendar days (expedited). 21 C.F.R. § 314.80(c). Less serious events must be reported
periodically (non-expedited). Id. Adverse events must be reported when the adverse events are
“associated with the use of a drug in humans, whether or not considered drug related.” 21 C.F.R.
§ 314.80(a). Accordingly, a reported adverse event does not necessarily signify that the drug
caused the adverse event. See also 21 C.F.R. § 314.80 (a reported adverse event “does not
necessarily reflect a conclusion by the applicant or FDA that the report or information constitutes
an admission that the drug caused or contributed to an adverse effect.”).
Plaintiffs attach a 99-page FDA Adverse Event Report as Exhibit 1 to their Opposition,
purportedly obtained by the plaintiffs through a FOIA request. The report lists adverse events
associated with Omontys reported by the manufacturer (Affymax) or health care professionals,
patients or others not associated with Affymax. The defendants argue that “[t]he Court should
11

1

death associated with Omontys was reported by Affymax to the FDA on August 14, 2012. See

2

Opp. at 20 (plaintiffs asserting that “The first death was reported August 14, 2012”); Dkt. No. 58

3

at 4 (defendants stating: “as Exhibit 1 to the Opposition demonstrates, that [death reported on

4

August 14, 2012] was the first [serious adverse event] of any type reported”). As the defendants

5

point out, the death reported on August 14, 2012 is the first report of any adverse event in the

6

report. A second adverse event was also reported that day of an anaphylactic reaction5 and chest

7

discomfort. The event was deemed life-threatening and required hospitalization. Dkt. No. 53-1 at

8

5. The Court will not presume, absent specific factual allegations, that the defendants were aware

9

of the adverse events before they were reported to the FDA.6 The plaintiffs have accordingly

10

failed to allege either falsity or scienter regarding the August 8, 2012 statements.

United States District Court
Northern District of California

11

B. November 8, 2012 statements

12

The plaintiffs allege that the following statements by defendants Orwin and Knapp on

13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

reject any arguments by Plaintiffs based on this exhibit as it is not part of the relevant pleadings.”
Dkt. No. 58 at 4 n.3. The defendants themselves, however, make arguments based on the exhibit,
conceding its authenticity, accuracy and relevance. See id. (“as Exhibit 1 to the Opposition
demonstrates, that [death reported on August 14, 2012] was the first [serious adverse event] of any
type reported”); id. at 6 n.5 (“Exhibit 1 cited by the Plaintiffs is consistent with this assessment.”).
Moreover, the report is referenced extensively in the CAC. See, e.g., ¶ 18 (“Close to 100
‘adverse events’ tied to the drug were reported to the FDA beginning in August 2012, including 14
deaths by February 22, 2013, the day before the recall.”), ¶ 19 (“There can be no doubt that
Defendant Orwin knew of these adverse event reports as early as August since, by definition,
many of them had to come directly from the manufacturer on an expedited basis.”), ¶ 21 (“The
first adverse event report due to anaphylaxis was received at the FDA in August 2012.”), ¶ 76 (“In
August, September, and October of 2012, some Affymax sales representatives selling Omontys to
dialysis clinics in Texas, Oklahoma, Mississippi, Louisiana, and Alabama filed Adverse Event
reports concerning serious reactions with Omontys.”), ¶¶ 88, 96, 116. As the foregoing
demonstrates, the Adverse Event Report attached as Exhibit 1 to the Opposition is essential to the
CAC and no party questions its authenticity. The Court therefore may properly consider Exhibit 1
in connection with this motion to dismiss. See, e.g., Sanders v. Brown, 504 F.3d 903, 910 (9th
Cir. 2007) (“Review [on a motion to dismiss] is generally limited to the contents of the complaint,
but a court can consider a document on which the complaint relies if the document is central to the
plaintiff's claim, and no party questions the authenticity of the document.”).
5
Plaintiffs define anaphylaxis as “an acute allergic reaction in which the airways constrict
and patients struggle to breathe, blood pressure plummets and the heart may beat erratically and be
unable to pump enough blood.” ¶ 19. The defendants assert that the Mayo Clinic defines
anaphylaxis as “a severe potentially life-threatening allergic reaction.” Dkt. No. 47 at 5 n.3 (citing
www.mayoclinic.com/health/anaphylaxis/DS00009).
6
At oral argument, counsel for the plaintiffs referred to documentation purportedly
showing that Affymax was aware of adverse events before August 8, 2012. However, these
allegations were not included in the Consolidated Amended Complaint and were not properly
before the Court. The plaintiffs may state these allegations in an amended complaint and the
Court will review their materiality upon a renewed motion to dismiss.
12

1

November 8, 2012 “concealed the true economic prospects for Omontys by touting the future

2

success of their relationship [with Fresenius] despite their knowledge that this relationship was in

3

jeopardy”:

4



5
6
7

[Defendant Orwin] “Fresenius is well underway in gaining clinical
and operational experience with converting centers to Omontys and
we believe that they are pleased with their overall experience so far.
We look forward to potentially expanding our relationship with
Fresenius for the longer term, broader contract in the future.”
(…)

8
“Yes. And as to what they’re particularly pleased about, I would say
that they’ve remarked that they’re pleased with the overall levels
experienced,…. I will say that I’m very pleased with the customers
that we’ve signed so far and with the potential that exists with them
for significant uptake of Omontys.”

9
10

United States District Court
Northern District of California

11


18

[Defendant Knapp] “Fresenius to date is treating approximately
10,000 patients in this program. It is our expectation that they will
continue to treat these patients under our existing supply agreement
until this agreement ends or we execute a new agreement. . . . While
there is no guarantee of expanded business, we continue to be very
encouraged by the ongoing high level of interest and the overall rate
of adoption. Over the coming months we expect to see many of the
organizations that decided to pilot Omontys begin making their
decision to move forward with full or close to full-scale conversions.
. . . And I’m -- I feel very confident with what we’ve seen today that
there won’t be surprises at the end of this.”

19

(…)

20

“Yes, this is Jeff. The -- it’s a difficult question to answer, in part
because it really varies from customer to customer and kind of their
confidence in the drug, their just overall level and readiness to try
new things. . . .As you might well know, some of these MDOs that
we announced during our previous quarterly call have now been
using it for a few months and I think are much more closer to
making a decision and I think we’ll see the benefits of that begin
hopefully in this current quarter and certainly well into 2013.” Id.

12
13
14
15
16
17

21
22
23
24
25

Opp. at 12 (citing ¶ 94).
26
The plaintiffs argue that, contrary to these statements, by November 8, 2012, the
27
defendants knew based on the adverse event reports that Affymax’s relationship with Fresenius
28
13

1

was in jeopardy that Fresnius’s patients would likely not continue using Omontys. The plaintiffs

2

also assert that the defendants misrepresented that Fresenius’s customers had “converted” to

3

Omontys while Fresenius was in fact assessing Omontys under a pilot program. The plaintiffs

4

argue that the defendants’ statements therefore “concealed the true economic prospects for

5

Omontys.” Opp. at 13.
According to the adverse event report, by November 8, 2012, the adverse events associated

7

with Omontys and reported to the FDA included four deaths, three life-threatening events, and six

8

other events requiring hospitalization. However, there is no factual allegation in the Consolidated

9

Amended Complaint from which the Court can conclude that this degree of adverse events

10

concerned Fresenius or otherwise jeopardized the Affymax-Fresenius relationship. On the

11
United States District Court
Northern District of California

6

contrary, three months later (February 13, 2013), when Fresenius announced that it would “pause

12

expansion” of the Omontys pilot program, it acknowledged that it had “seen infrequent allergic

13

reactions” to Omontys, including a “small number [that] have been serious.” ¶ 108. Nonetheless,

14

Fresenius recommended continued use of Omontys “as it has been providing effective anemia

15

management.” Id. The letter concluded by noting that “[a]s many of you have become quite

16

comfortable with the medication, physicians and facilities that have been using Omontys who

17

wish to continue prescribing it for new patients may choose to do so.” Id.

18

The plaintiffs also argue that the defendants’ proffered reason for seeking to change

19

Omontys’s label in October 2012—“ to bring the language into our label in line with what exists

20

for the other ESAs”—misled the market because the change was in fact sought in response to the

21

serious adverse events reported in connection with Omontys.7 Opp. at 14 (citing ¶ 94). In their

22

opposition to the motion to dismiss, the plaintiffs identify the following two statements that

23

allegedly misrepresented the reasons for the label change:

24



25

[Defendant Orwin] “Since launch thousands of patients have
received Omontys in the post-marketing setting. As anticipated,
this broad experience has been helpful in further informing real-

26
27
28

7

The plaintiffs allege that the defendants’ proffered reasoning for the label change was
misleading; they do not allege that the new label was not, in fact, “in line with what exists for
other ESAs.”
14

world use of the compound where infrequent, but sometimes
serious, allergic reactions have been reported. To that end, we
have proposed to the FDA, and have now updated our label to
include, additional language regarding allergic reactions similar
to that which is found in the existing labels for other ESAs. . . .
And you’re right; allergic reactions are mentioned, but they’re
not described in the same sort of wholesome way that they are in
other ESAs, which is what led us, based on the experience and
reported events, however infrequent, to look at that against what
was in the label and decide that it made sense for us to bring the
language into our label in line with what exists for the other
ESAs. But, I’ll let Anne-Marie speak specifically to that
language.”

1
2
3
4
5
6
7
8
9
10

United States District Court
Northern District of California

11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27



[Defendant Duliege] “Now that we have thousands of patients,
literally more than 10,000 patients, we felt it was prudent to
update our label with the new information that we have
accumulated as part of our pharmacovigilance severance
program. Specifically, the report of allergic reactions that you
mentioned in the label continues to be infrequent and a result on
treatment. However, some of these reactions have been more
serious. Some of the most recent reaction (inaudible) have been
more serious and this is what we have included as information in
the label to bring, as you said, John, our label in line with the
existing label of other ESA. . . .”

Opp. at 14 (citing ¶ 94).
The defendants respond that the plaintiffs do not adequately allege that the statements were
false because the defendants expressly stated that the label change was “prompted” by adverse
events associated with Omontys. Dkt. No. 58 at 8. Specifically, defendant Orwin stated that the
change was proposed after “infrequent, but sometimes serious, allergic reactions have been
reported” and that Affymax was “led” to seek the change “based on the experience and reported
events.” Similarly, defendant Duliege stated that Affymax “felt it was prudent to update our label
with new information that we have accumulated as part of our pharmacovigilance [surveillance]
program” and that “[s]ome of the most recent reaction (inaudible) have been more serious.”
Affymax’s Form 10-Q filed the same day likewise stated that “in November 2012, we revised the
Omontys label to reflect adverse events from post-marketing spontaneous reports related to serious
allergic reactions.” Dkt. No. 49-9 at 34 (Kaban Decl., Ex. 9).
In light of the defendants’ express disclosures that the label change was sought in response

28
15

1

to adverse events associated with Omontys, the Court agrees that the plaintiffs have not adequately

2

alleged that the defendants falsely represented that the label change was sought to make the label

3

consistent with other ESAs.

4
5
6

C. February 12, 2013 statements
The plaintiffs allege that the following February 12, 2013 statements by defendant Orwin
during a conference call with investors misrepresented the safety and efficacy of Omontys:

7

And the question was -- to provide a little bit more color on the
Fresenius agreement, and what kind of information they think they
will need in order to make a decision to go wider with Omontys. . . .
Obviously, the safety and efficacy were established, and are
typically best established in a comparative Phase 3 program.
Fortunately for us, we had a very large program, and a very
comprehensive evaluation of both safety and efficacy. But I think
what they want to see is that they could replicate those kinds of
results in their patient population, and that by treating 10,000
patients, and looking at patients as their own controls, but also
looking at a matched cohort, they could learn a lot about the
performance of Omontys in their patient population, before making
a decision to utilize the product more broadly. . . . So, I think what
they need to see is they need to see how the product performs in
their population. Safety and efficacy, of course, always, but even
more importantly, the dose efficiency in their population, since
safety and efficacy were already fairly well-established.

8
9
10

United States District Court
Northern District of California

11
12
13
14
15
16

Opp. at 13 (citing ¶ 106) 8. The plaintiffs allege that these statements were false “because

17

Defendants gave the market the impression that the real issue [with Fresenius’s pilot assessment of

18

Omontys] was dose efficacy and not safety and efficacy, when, by this point in time, Defendants

19

were well aware that the injection of Omontys caused patients severe allergic reactions, resulting

20

in hospitalization and death. Opp. at 13 (citing ¶ 106). The plaintiffs allege that “[o]ver 100

21

‘adverse events’ tied to the drug were reported to the FDA beginning in August 2012, including 7

22

deaths prior to this conference call.” Id.

23

In response, the defendants argue that “Plaintiffs fail to establish that Affymax or any

24
25
26
27
28

8

The plaintiffs’ opposition brief erroneously identifies the February 12, 2013 statement in
paragraph 106 of the Consolidated Amended Complaint as occurring on August 8, 2012. See
Opp. at 13.
16

1

Defendant had a duty to disclose this information at the time of the statement.” 9 Dkt. No. 58 at 5.

2

Citing Matrixx Initiatives, Inc. v. Siracusano, 131 S. Ct. 1309, 1321 (2011), the defendants argue

3

that the plaintiffs have failed to established “the ‘something more’ that is required before a drug

4

manufacturer has an affirmative duty to disclose post-marketing SAEs.” In support, the

5

defendants argue that four “important, publicly disclosed facts” establish that the adverse events

6

reported do not “var[y] materially (in frequency, severity or some other way) from what would

7

have been expected based on the publicly disclosed information:”

8



The “black box” warning for Omontys, reproduced above, states that “ESAs increase the
risk of death, myocardial infarction, stroke, venous thromboembolism, thrombosis of
vascular access and tumor progression and recurrence;”



The Omontys label “also made clear that, during the Phase 3 clinical trials, 22.8% of the
patients receiving OMONTYS either died or suffered heart attacks or other serious adverse
cardiovascular events;”



In November 2012, Affymax publicly disclosed that it had modified the Omontys label as
a result of serious post-marketing allergic reactions; and



“the patient population for Omontys is an extremely sick one, suffering from Chronic
Kidney Disease and related anemia and requiring dialysis” and the “average life span of all
dialysis patients is sadly less than three years.”

9
10

United States District Court
Northern District of California

11
12
13
14
15
16
17

Dkt. No. 58 at 7.
a. Material falsity

18
19

The Court finds that the plaintiffs have adequately pleaded that defendant Orwin’s

20

statements on February 12, 2013 were misleading and misrepresented the safety of Omontys.

21

Specifically, Orwin represented that the safety of Omontys was already “established,” and

22

therefore not a concern, when he stated that “[o]bviously, the safety and efficacy were established,

23

and are typically best established in a comparative Phase 3 program. Fortunately for us, we had a

24

very large program, and a very comprehensive evaluation of both safety and efficacy.” ¶ 106.

25
9

26
27
28

The Court rejects the defendants’ assertion that this statement is not actionable because it
“has little to do with the safety of Omontys; rather, it relates to the type of analysis of Omontys
Affymax expected Fresenius, a major chain of dialysis centers, to undertake prior to expanding its
use of the drug in additional centers.” Dkt. No. 58 at 5. Even if the statement related to the type
of analysis Affymax expected Fresenius to undertake, the question remains whether the statement
misled the market about the safety of Omontys.
17

1

Orwin reinforced this impression when he stated that “I think what they [Fresenius] need to see is

2

they need to see how the product performs in their population. Safety and efficacy, of course,

3

always, but even more importantly, the dose efficiency in their population, since safety and

4

efficacy were already fairly well-established.” Id. (emphasis added). Given the serious adverse

5

events reported to the FDA by this time, including, by the Court’s count, nine deaths, four life-

6

threatening events, and sixteen other events requiring hospitalization (Dkt. No. 53-1), the plaintiffs

7

have adequately pleaded that these statements were false.

8

The Court further finds that the misrepresentation was material. In Matrixx, the Supreme
Court held that “the materiality of adverse event reports cannot be reduced to a bright-line rule and

10

a pharmaceutical manufacturer does not necessarily need to disclose all reports of adverse events.

11
United States District Court
Northern District of California

9

Matrixx, 131 S. Ct. at 1313-14, 1321. As the Court explained, “[a]dverse event reports are daily

12

events in the pharmaceutical industry; in 2009, the FDA entered nearly 500,000 such reports into

13

its reporting system” and “[t]he fact that a user of a drug has suffered an adverse event, standing

14

alone, does not mean that the drug caused that event.” Id. Rather than a bright-line rule, Matrixx

15

instructs that the “question remains whether a reasonable investor would have viewed the

16

nondisclosed information as having significantly altered the ‘total mix’ of information made

17

available.” Id. (emphasis in original and internal punctuation omitted) (citing Basic, 485 U.S. at

18

232). Accordingly, “the mere existence of reports of adverse events—which says nothing in and

19

of itself about whether the drug is causing the adverse events—will not satisfy this [total mix of

20

information] standard.” Id. Rather, “something more is needed” to make the existence of reports

21

of adverse events something which a reasonable investor would view as significantly altering the

22

‘total mix’ of information made available. Id. “[T]hat something more is not limited to statistical

23

significance and can come from the source, content, and context of the [adverse event] reports. Id.

24

(internal punctuation and citation omitted).

25

Notably, the Matrixx Court concluded that such a “contextual inquiry may reveal in some

26

cases that reasonable investors would have viewed reports of adverse events as material even

27

though the reports did not provide statistically significant evidence of a causal link. Id. In fact,

28

the Matrixx Court concluded that it was substantially likely that a reasonable investor would have
18

1

viewed adverse event reports “about more than 10 patients who had lost their sense of smell after

2

using Zicam” as having significantly altered the total mix of information made available. Id. at

3

1322-23.

4

Here, given that Omontys is Affymax’s primary product, the Court further finds it

5

substantially likely that a reasonable investor would have viewed over two dozen fatal, life-

6

threatening and other adverse reactions to Omontys requiring hospitalization as significantly

7

altering the “total mix” of information made available. See, e.g., id at 1323 (“Assuming the

8

complaint’s allegations to be true, however, Matrixx had information indicating a significant risk

9

to its leading revenue-generating product.”). The Court accordingly finds the misrepresentations
material, notwithstanding the four “important, publicly disclosed facts” identified by the

11
United States District Court
Northern District of California

10

defendants.

12

First, as the defendants recognized when they proposed a label change, the original “black

13

box” warning did not warn of the serious allergic reactions seen in “real-world use” of Omontys.

14

¶ 94. It is one thing to note generally that a class of drugs, to which Omontys belongs, “increase[]

15

the risk of death, myocardial infarction, stroke, venous thromboembolism, thrombosis of vascular

16

access and tumor progression and recurrence.” It is a wholly different matter to disclose to the

17

market that this particular drug has been linked to over two dozen deaths, life-threatening

18

conditions and other adverse reactions requiring hospitalization.

19

Second, the defendants’ reliance on the label’s package insert is misguided.10 As an initial

20

matter, the package insert referenced the clinical trials in the context of demonstrating the safety of

21

Omontys, not the dangers. See Dkt. No. 49-19 (Kaban Decl., Exs. 19 at § 14 (“The efficacy and

22

safety of Omontys in patients with CKD on dialysis were demonstrated in two randomized, active-

23

controlled, open-label, multi-center clinical studies . . . .”). Moreover, the defendants themselves

24
25
26
27
28

10

The 14-page package insert states, in the portion cited by the defendants, “Studies 1 and
2 had a pre-specified, prospective, pooled analysis of a composite cardiovascular safety endpoint
consisting of death, myocardial infarction, stroke, or serious adverse events of congestive heart
failure, unstable angina or arrhythmia. In patients receiving Omontys, 22.8% experienced one of
these events compared to 24.4% receiving epoetin (hazard ratio 0.95, 95% CI 0.77, 1.17).” Dkt.
No. 49-19 (Kaban Decl., Exs. 19 at § 14).
19

1

note that “the average life span of all dialysis patients is sadly less than three years.” Nothing in

2

the package insert indicates that 22.8% of patients suffered “serious adverse cardiovascular

3

events” as a result of the Omontys rather than as a result of their medical conditions. Indeed, if

4

Omontys caused serious adverse reactions in over a quarter of its users it presumably would never

5

have been approved by the FDA.

6

Third, while Affymax referred to “serious allergic reactions” when it discussed the

7

proposed label change in November 2012, it emphasized that the reactions were “infrequent” and

8

suggested that the reactions were in line with reactions to other ESAs. Whether or not that was

9

true in November 2012, by February 12, 2013, the deaths, life-threatening reactions and other
reactions requiring hospitalization had more than doubled. As stated above, the Court finds that a

11
United States District Court
Northern District of California

10

reasonable investor would have found that the adverse events reported by February 12, 2013

12

significantly altered the total mix of information available. By February 12, 2013, nine deaths,

13

four life-threatening events, and sixteen other events requiring hospitalization had already been

14

reported to the FDA. In the eleven days between February 12 and February 23, when Affymax

15

announced a total recall of Omontys, five additional deaths, one life-threatening reaction and one

16

other reaction requiring hospitalization had been reported to the FDA. If Affymax believed that

17

these additional adverse events warranted a total recall of Omontys, it stands to reason that a

18

reasonable investor would have found that the adverse events reported by February 12, 2013

19

significantly altered the total mix of available information.

20

Fourth, the assertion that the “average life span of all dialysis patients is sadly less than

21

three years” has nothing to do with information linking use of Omontys to deaths and other serious

22

reactions.

23
24

b. Scienter
The Court also finds that the plaintiffs have adequately alleged that Orwin acted with the

25

requisite scienter when he made the misrepresentations discussed above. “[W]hen determining

26

whether the pleaded facts give rise to a ‘strong’ inference of scienter [a required under the

27

PSLRA], the court must take into account plausible opposing inferences.” Zucco Partners, LLC v.

28

Digimarc Corp., 552 F.3d 981, 991 (9th Cir. 2009) (citation and internal punctuation omitted). “A
20

1

court must compare the malicious and innocent inferences cognizable from the facts pled in the

2

complaint, and only allow the complaint to survive a motion to dismiss if the malicious inference

3

is at least as compelling as any opposing innocent inference.” Id. “Scienter may be established,

4

by showing that the defendants knew their statements were false, or by showing that defendants

5

were reckless as to the truth or falsity of their statements.” Gebhart v. S.E.C., 595 F.3d 1034,

6

1041 (9th Cir. 2010).

7

Here, as nearly all of the adverse events were reported to the FDA by Affymax there is no

8

dispute that Affymax was aware of the adverse events. Plaintiffs have therefore adequately

9

alleged that Orwin, Affymax’s CEO, knew that his statements that the safety of Omontys had
already been “established” were false, or that he was reckless regarding the truth or falsity of those

11
United States District Court
Northern District of California

10

statements. The interference that Orwin acted with the requisite knowledge or recklessness is

12

more compelling than the interference that he did not. Scienter is therefore established.

13
14

c. Safe harbor for forward-looking statements
The PSLRA includes “safe harbor” provisions for forward-looking statements. “The

15

provisions provide that a person shall not be liable for any ‘forward-looking statement’ that is

16

‘identified’ as such, and is accompanied ‘by meaningful cautionary statements identifying

17

important factors that could cause actual results to differ materially from those in the forward-

18

looking statement.’” No. 84 Employer-Teamster Joint Council Pension Trust Fund v. Am. W.

19

Holding Corp., 320 F.3d 920, 936 (9th Cir. 2003) (citing 15 U.S.C. § 78u-5(c)(1)(A)(i)). A

20

“forward-looking statement” is any statement regarding (1) financial projections, (2) plans and

21

objectives of management for future operations, (3) future economic performance, or (4) the

22

assumptions “underlying or related to” any of these issues. Id.

23

Orwin’s February 12, 2013 statements are not forward looking because they relate to the

24

“established” safety of Omontys, not projections, plans, objectives, future performance, or the

25

assumptions underlying those issues. The safe harbor provisions therefore do not apply to these

26

statements. Cf. id. at 397 (“the statements by America West do not constitute ‘forward-looking’

27

statements. Each is a disclosure of the fine imposed by the settlement agreement for past

28

violations of FAA regulations and a description of the present effects of their imposition on the
21

1

company”).

2
3

d. Loss causation
To state a Rule 10b–5 claim, “the plaintiff shall have the burden of proving that the act or
omission of the defendant alleged to violate this chapter caused the loss for which the plaintiff

5

seeks to recover damages.” In re Daou Sys., 411 F.3d at 1014 (citing 15 U.S.C. § 78u–4(b)(4)).

6

“To establish loss causation plaintiffs must show that the stock price dropped after the truth was

7

‘revealed.’” In re LeapFrog Enterprises, Inc. Sec. Litig., 527 F. Supp. 2d 1033, 1040-41 (N.D.

8

Cal. 2007). There is no dispute that the stock price of Affymax dropped after the adverse

9

reactions associated with Omontys were revealed when Affymax announced the recall. The

10

plaintiffs have therefore adequately pleaded loss causation regarding the February 12, 2013

11
United States District Court
Northern District of California

4

statements.

12

D. Violation of Section 20(a)

13

To establish a prove a prima facie case violation of Section 20(a), plaintiff must prove: (1)

14

a primary violation of federal securities laws and (2) that the defendant exercised actual power or

15

control over the primary violator (Affymax). Howard v. Everex Sys., Inc., 228 F.3d 1057, 1065

16

(9th Cir. 2000).

17

The defendants argue that the section 20(a) claim fails because the Consolidated Amended

18

Complaint “offers only boilerplate allegations of control based on ‘executive status.’” Dkt. No. 47

19

at 25 (citing ¶¶ 130-31). The Court agrees. The plaintiffs have not pleaded any factual allegations

20

from which the Court can conclude that the individual defendants “exercised actual power or

21

control over the primary violator,” notwithstanding their executive status. See, e.g.,Paracor Fin.,

22

Inc. v. Gen. Elec. Capital Corp., 96 F.3d 1151, 1163 (9th Cir.1996) (“The fact that a person is a

23

CEO or other high-ranking officer within a company does not create a presumption that he or she

24

is a ‘controlling person.’”).

25
26

CONCLUSION
The defendants’ motion to dismiss is GRANTED IN PART and DENIED IN PART. The

27

defendants’ motion is GRANTED regarding Count I (violations of Section 10(b) and SEC

28

Rule 10b–5) against individual defendants Cross, Duliege, and Knapp. The motion is GRANTED
22

1

regarding Count I (violations of Section 10(b) and SEC Rule 10b–5) against Affymax and

2

individual defendant Orwin based on the August 2012 and November 2012 statements. The

3

motion is GRANTED regarding Count II (violation of Section 20(a)) against all defendants. The

4

Consolidated Amended Complaint is DISMISSED WITHOUT PREJUDICE with regard to the

5

claims identified above. Any amended complaint shall be filed within 30 days of this Order.

6

The motion is DENIED regarding Count I (violations of Section 10(b) and SEC Rule 10b–

7

5) against Affymax and individual defendant Orwin based only on the February 12, 2013

8

statements regarding the safety of Omontys.

9
10

United States District Court
Northern District of California

11
12
13

IT IS SO ORDERED.
Dated: January 21, 2014
______________________________________
WILLIAM H. ORRICK
United States District Judge

14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
23