On September 12, 2017, United States District Judge Yvonne Gonzalez Rogers of the United States District Court for the Northern District of California dismissed without prejudice a consolidated putative class action against Dynavax Technologies Corporation and certain of its officers. In re Dynavax Securities Litigation, No. 4:16-cv-06690-YGR (N.D. Cal. Sept. 12, 2017). Plaintiff alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5, by knowingly or recklessly disseminating false and misleading statements about Dynavax’s developments and efforts to earn FDA approval of its proprietary hepatitis B vaccine. The Court dismissed the consolidated complaint without prejudice, finding that plaintiff had not met the heightened pleading standards for securities fraud under the PSLRA.

Plaintiff argued that defendants made materially false statements by offering information about certain positive aspects of the vaccine trial—namely, the rates of occurrence of clinically significant Adverse Events of Special Interest (“AESIs”)—while failing to disclose negative results relating to certain cardiac events, which plaintiff characterized as “other cardiac AESIs.” The Court noted that Section 10(b) and Rule 10b-5 do not create an affirmative duty to disclose any and all material information, but rather a duty to disclose all facts necessary to render a statement accurate and not misleading, once a company elects to disclose material information. Taking judicial notice of SEC filings and press releases by defendants, the Court found that the clinical trial was specifically designed by Dynavax and the FDA to analyze a predetermined list of AESIs relating to autoimmune and inflammatory disorders, which did not include cardiac events. The Court noted that while plaintiff conceded, at the hearing on the motion to dismiss, that cardiac events were not included as one of the AESIs under the trial, plaintiff took the position that defendants’ failure to disclose the cardiac events nevertheless made the statements false and misleading. The Court found that, “whatever merit plaintiff’s arguments in opposition may have,” they were not included as allegations in the consolidated amended complaint. Concluding that plaintiff’s faulty characterization of the cardiac events as an AESI was the complaint’s “fatal flaw,” the Court held that plaintiff’s allegations as pled were inactionable.

Noting that plaintiff failed to allege actionable statements or omissions under Section 10(b), the Court declined to address whether plaintiff had adequately alleged scienter, inapplicability of the PSLRA’s safe harbor provisions, or Section 20(a) claims. The Court dismissed the complaint with leave to amend, in order to “specify each statement upon which the claim is based, whether such a statement is alleged to be an affirmative misrepresentation or an omission, and why each statement was materially false or misleading.”

This decision is a clear example of courts’ evaluation of motions to dismiss based solely on the allegations included in the plaintiff’s complaint, rather than novel arguments raised outside the pleadings. It is also a notable addition to the sizeable category of securities cases brought regarding clinical-stage biopharmaceutical companies with products in development.

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