On June 4, 2018, Judge Yvonne Gonzalez Rogers of the United States District Court for the Northern District of California dismissed with prejudice a class action alleging that Dynavax Technologies Corporation (“Dynavax” or the “Company”) and its executives violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 by alleging omitting information about its hepatitis B vaccine. In re Dynavax Securities Litigation, No. 4:16-cv-06690-YGR (N.D. Cal. June 4, 2018). The Court’s decision is another in a long line of decisions declining to find a securities violation when a pharmaceutical company is alleged to have concealed adverse developments in clinical trials.

Dynavax develops products designed to prevent infectious diseases such as hepatitis. The Company submitted an initial biologistics license application for an investigational hepatitis B vaccine (HBV-23), which the FDA rejected in 2012 because of safety concerns. The Company then implemented a clinical trial to evaluate the vaccine’s safety. In late 2015, data from the HBV-23 trial revealed a numerical imbalance in a small number of cardiac events. Defendants expanded work on the data and consulted with external experts. Meanwhile, in January and March of 2016, the Company announced positive preliminary trial results and plans to submit a revised application. The Company said that safety endpoints set for the trial had been met and that rates of clinically significant adverse events were consistent with randomization. In late March, the Company announced that the FDA accepted its application for review. However, on September 2, the FDA cancelled the next step in the approval process, and the Company’s stock price declined from $15.94 to $10.91. Then, on November 7, the Company announced that the FDA was seeking more information about the imbalance in the HBV-23 study, and the Company’s stock price declined by 64%.

The Court dismissed plaintiff’s claim, finding that plaintiff failed to allege that the omission of the cardiac events data rendered any statements false or misleading at the time they were made. The Court further held that adverse events in a clinical trial do not by themselves give rise to a duty to disclose. Instead, to be actionable, an alleged omission of adverse events must create an impression of a state of affairs materially different from the one that actually existed. The Court held that Dynavax’s omission of the imbalance data would not have led a reasonable investor to believe that no cardiac adverse events occurred or that no events could affect the FDA’s approval timeline. Moreover, because reasonable investors would expect that the Company and FDA would discuss the sufficiency of the clinical trials and that the discussion might include contrary points of view, the Court held that allegedly failing to divulge the details of the Company’s dialogue with the FDA was not enough to state a securities claim in the absence of factual allegations suggesting the dialogue was “highly unusual,” outside the normal process or “so contradictory” of the Company’s statements.

As to scienter, the Court held that plaintiff failed to allege that defendants knew that omitting information about the Company’s dialogue with the FDA and the cardiac events would mislead investors. The Court further held that plaintiff failed to allege that defendants knew at the time they made statements about the FDA approval process that the data were likely to halt or delay the approval process. And, while the Court acknowledged the financial importance of the vaccine to the Company might support a motive, it did not alone support a strong inference of scienter.