Khoja v. Orexigen Therapeutics, Inc.

Case Type:
Case Status:
Affirmed in part and Reversed in part
No. 16-56069 (9th Circuit, Aug 13,2018) Published
Ninth Circuit affirmed in part and reversed in part order of district court granting motion to dismiss for failure to state a claim under the Securities Exchange Act of 1934. District court erred in taking judicial notice of disputed facts from public records. It was an abuse of discretion to consider materials outside the complaint. Courts should not make assumptions about the truth of an incorporated document where it only serves to dispute a well-pleaded complaint.
Procedural context:
Appeal to the Ninth Circuit from order of district court (S.D. California) dismissing claim of an action under the Securities Exchange Act of 1934.
Defendant Orexigen is a small biotechnology firm that developed an obesity drug candidate. FDA required the Defendant to conduct a “light study” to determine whether the drug increased the risk of major adverse cardiovascular events. Twenty-five percent interim results showed the drug reduced cardiovascular events by forty-one percent when compared to other placebos. FDA required the results to remain confidential but they were leaked. Defendant filed a Form 8-K with the SEC where it described the 25 percent interim results. Stocks surged as a result. However, after the study reached fifty-percent, it no longer indicated a heart benefit. When the Defendant filed new reports with the SEC, it omitted the new study developments. On behalf of the putative investor class, Plaintiff Khoja filed a claim arguing the Defendant violated § 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. Defendant moved to dismiss the complaint for failure to state a claim and requested judicial notice of twenty-two documents. District court granted the motion as to twenty-one documents and dismissed the action.
Tashima, Berzon, and Payne

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