Khoja v. Orexigen Therapeutics, Inc., 498 F.Supp.3d 1296

Background:

Orexigen, a biotech with a Takeda collaboration, filed a March 3, 2015 Form 8-K and a patent publication disclosing ~25% interim LIGHT Study MACE data and noted the patent relied on that data; the disclosures sharply raised Orexigen’s stock price.
On May 12–13, 2015 media reports (Bloomberg, WSJ, BioSpace) said Takeda initiated dispute-resolution/termination steps and threatened to end the partnership, and the stock fell sharply thereafter.
Lead Plaintiff alleged the May 12 Bloomberg article was a corrective disclosure that revealed March 3 misstatements/omissions (in particular, that Orexigen had published the data without informing Takeda), causing class losses.
Defendants moved to dismiss the consolidated amended complaint (CAC) for failure to plead loss causation and related elements; they also sought incorporation-by-reference of several public documents.
The Court granted-in-part and denied-in-part the incorporation request (incorporating the FDA review, the patent, the March 3 8‑K, and the Bloomberg article, but not the WSJ and BioSpace pieces), and held that the CAC failed to plead (1) an actionable omission regarding notice to Takeda (no duty alleged) and (2) loss causation linking the May 12 Bloomberg article to the March 3 disclosures.
Claims based on the asserted connection between the May 12 article and the March 3 statements were dismissed without prejudice; plaintiff was granted one final 30‑day opportunity to amend.

Issues:

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether various public documents may be incorporated by reference into the CAC	Plaintiff contended defendants sought to use those documents to contradict pleadings and offered some for truth	Defendants asked court to incorporate FDA review, patent, 8‑K, Bloomberg, WSJ, BioSpace to show context and undermine loss-causation theory	Court incorporated FDA review, the ’371 patent, the March 3, 2015 Form 8‑K, and the Bloomberg article; refused to incorporate WSJ and BioSpace articles
Whether failure to disclose that Orexigen did not notify Takeda before filing the 8‑K is an actionable omission	Plaintiff: omission was material and misleading; investors would find lack of notice to Takeda important	Defendants: no duty to disclose such internal communications; analogous DAP-duty theory rejected by Ninth Circuit	Court: no plausible duty alleged; omission not actionable as pleaded, so claim based on failure to notify Takeda fails
Whether the May 12, 2015 Bloomberg article was a corrective disclosure that establishes loss causation for March 3 statements	Plaintiff: Bloomberg revealed Takeda’s dispute action which related back to March 3 misconduct and caused price decline	Defendants: Bloomberg did not reveal falsity of March 3 statements nor tie Takeda’s actions to March 3; connection speculative	Court: allegations too tenuous; Bloomberg did not plausibly correct the March 3 statements or relate back; loss causation not pleaded
Whether leave to amend should be allowed	Plaintiff sought leave to cure pleading defects	Defendants urged denial as futile	Court: granted one final leave to amend (30 days); dismissal without prejudice as to the deficient theory

Key Cases Cited

Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988 (9th Cir. 2018) (limits on incorporation-by-reference and rule against judicially noticing disputed facts)
Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (U.S. 2005) (plaintiff must plead causal connection between misrepresentation and loss)
Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (pleading must allege facts showing plausible entitlement to relief)
Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (plausibility standard for complaints)
Basic Inc. v. Levinson, 485 U.S. 224 (U.S. 1988) (materiality standard for omitted facts: substantial likelihood disclosure would alter total mix)
United States v. Ritchie, 342 F.3d 903 (9th Cir. 2003) (incorporation-by-reference doctrine)
Berson v. Applied Signal Tech., Inc., 527 F.3d 982 (9th Cir. 2008) (when a statement is misleading)
Metzler Inv. GMBH v. Corinthian Colleges, Inc., 540 F.3d 1049 (9th Cir. 2008) (courts need not indulge unwarranted inferences to save a complaint)
In re Daou Sys., Inc. Sec. Litig., 411 F.3d 1006 (9th Cir. 2005) (PSLRA and Rule 9(b) pleading requirements for securities fraud)