The complaint brings forth claims for violations of the Securities Exchange Act of 1934 against FibroGen, Inc. (“Fibrogen” or the “Company”), a biopharmaceutical company, and certain of its senior executives (collectively, “Defendants”). The complaint alleges, among other things, that throughout the Class Period, Defendants made materially false and misleading statements and omissions regarding the efficacy and safety of the Company’s single-most important drug, Roxadustat, an oral treatment for anemia in patients with chronic kidney disease (“CKD”). Defendants repeatedly represented to investors that Roxadustat’s “robust,” “outstanding,” and “extremely clean” Phase 3 clinical trial data demonstrated that the drug had in fact met specified objectives, and that on the strength of this very data, Roxadustat’s prospects for receiving FDA approval were “highly compelling,” particularly in the all-important segments of patients who have just begun dialysis (“incident dialysis” patients) or who have not yet started dialysis (non-dialysis or “NDD” patients). However, as Defendants themselves would ultimately be forced to admit, their Class Period statements were demonstrably false.
On March 1, 2021, Defendants’ fraud began to unravel. On that day, FibroGen shocked investors by announcing that the FDA would hold an Advisory Committee (“AdCom”) meeting to review Roxadustat’s new-drug-application (“NDA”)—a surprising setback that late in the FDA approval timeline. On this news, FibroGen’s stock price fell $16.18 per share, or over 32%, to close at $34.35 per share.
Just weeks later, on April 6, 2021, FibroGen was forced to admit, for the first time, that Defendants had made “post-hoc changes to the stratification factors” in Roxadustat’s Phase 3 trial results—changes that were so significant that FibroGen needed to promptly “clarify this issue with the FDA” to “make sure that it was clear which analyses used which factors, prespecified and post-hoc.” Defendants confirmed that investors had been completely unaware of this material information, as Roxadustat’s true FDA-prespecified data “[had] not been previously publicly reported.” In response, FibroGen’s share price was cut virtually in half in just two trading days, from $34.64 per share on April 6, 2021 to $18.81 per share on April 8, 2021.
On July 15, 2021, the FDA’s AdCom met to review Roxadustat’s NDA and the AdCom revealed that the drug’s issues were even worse than what Defendants had previously represented. The AdCom voted virtually unanimously against approval for Roxadustat for any patient population, even with a “Black Box” warning. On this news, trading in FibroGen stock was halted on July 15, 2021, and the following day, the Company’s stock price plummeted over 42%, or $10.49 per share, from $24.84 per share to $14.35 per share on July 16, 2021. All told, the revelation of Defendants’ fraud eviscerated FibroGen’s stock price by over 75% from its Class Period high, wiping out billions in the Company’s market capitalization.
On August 30, 2021, the Honorable Edward M. Chen appointed the Employees’ Retirement System of the City of Baltimore, the City of Philadelphia Board of Pensions and Retirement, and the Plymouth County Retirement Association (collectively, the “Retirement Systems”) as Lead Plaintiffs and Saxena White as Lead Counsel in the consolidated action. In selecting lead counsel, Judge Chen noted that “Saxena White has recovered hundreds of millions of dollars for plaintiffs in securities cases over the past decade,” and noted its “diverse makeup” as a federally certified woman- and minority-owned firm. Moreover, Judge Chen determined that the Retirement Systems’ sophistication, litigation experience, fiduciary responsibilities to their beneficiaries, and rigorous vetting process for counsel strongly imply that they “are capable of overseeing the litigation and their proposed lead counsel in an independent manner.”
The consolidated complaint was filed on October 29, 2021. On January 14, 2022, Defendants filed their motion to dismiss the consolidated complaint. The briefing schedule for this motion concluded on April 8, 2022 and the Court held a hearing on this motion on April 28, 2022.
On July 15, 2022, Judge Chen denied Defendants’ Motions to Dismiss—an outstanding decision for the Class that upholds the Class Period in full. In the order, Judge Chen found that Defendants’ general arguments exempting their statements as inactionable failed. Statements regarding the prospects of the Company’s Roxadustat drug for approval and its safety, efficacy, and market potential were not forward-looking because they relied on purportedly existing or established clinical data. Similarly, Defendants’ claims that their statements were merely “puffery,” promotional statements, or opinions that should not be relied upon by investors also failed. Here, Judge Chen referenced our argument at the hearing in noting that “efficacy and safety are inevitably intertwined because the key to efficacy is safe dosing,” which made FibroGen’s claims of Roxadustat’s efficacy false as it was only established at “unreasonably high dosing levels.”
Regarding scienter, Judge Chen held that the consolidated complaint established several avenues to sufficiently allege that all Defendants acted with the intent to deceive investors. First, scienter could be inferred from the fact that “Defendants manipulated data in order to conceal known safety issues,” and therefore could not reasonably argue they believed their statements to be in good faith. Second, confidential witnesses developed through our extensive investigation also established “that post-hoc changes to the data were made by FibroGen’s most senior officers,” and that Defendants knew the FDA would require a “Black Box” warning label while they told investors “the exact opposite.” Third, Defendants’ own admissions of data manipulation and attempts to soften the impact by falsely implying they were supported by the FDA also supported scienter. Fourth, executive compensation packages tied to Roxadustat approval milestones “expressly ties” Defendants to manipulation of data. Finally, Defendants admitted personal involvement in the NDA submission and knowledge of the safety data, as well as the “critical” nature of the viability of FibroGen’s flagship product, also contributed to Judge Chen’s holding.
Finally, Defendants conceded loss causation, the connection between the alleged disclosures of fraud and the decline in the stock price and damages to investors, so that element was not addressed in Judge Chen’s opinion. As a result, there is nothing in Judge Chen’s opinion that could be understood to reduce the Class’s damages.
The case has now proceeded to the discovery phase.