Zosano Pharma Corp. has beaten claims that it lied to investors about the development of a migraine drug called Qtrypta, with a California federal judge finding that the shareholders did not show that company executives intentionally misled investors.
U.S. District Judge Edward M. Chen said in an order Wednesday that lead plaintiffs Tuk Doss and Hosam Alqurashi failed to sufficiently allege that the Fremont, California-based startup and three of its current or former CEOs made false or misleading statements either intentionally or with deliberate recklessness, as required under Ninth Circuit precedent for pleading scienter.
Judge Chen said the case aligns with the Ninth Circuit case of Nguyen v. Endologix Inc. , in which the court concluded that the idea that company executives would rather keep a stock price temporarily high and then face an inevitable fallout when their product fails to obtain regulatory approval on a certain timeline — without those executives seeking to profit from the scheme in the meantime — makes no logical sense.
"Consequently, allegations like these are implausible as a matter of law and cannot survive a motion to dismiss," Judge Chen said.
But even if the Endologix case didn't control the outcome of the instant case, the shareholders also failed to show that Zosano and its executives actually had knowledge of the clinical data later flagged by the U.S. Food and Drug Administration, or that the data created any increased regulatory risk, Judge Chen said.
Cody S. Harris of Keker Van Nest & Peters LLP, counsel for Zosano, said in a statement that Wednesday's order recognized that the complaint came nowhere close to stating a securities fraud claim.
"The plaintiffs' fraud theory was foreclosed by Ninth Circuit precedent and made no sense," Harris said. "Zosano is an innovative company working to bring a potentially revolutionary new migraine treatment to market. We look forward to defending the company if this lawsuit proceeds."
Read more here.