PSLRA Claims Need Proof Of False Statements: 9th Circ. (Law360)

The Ninth Circuit found Thursday that heightened pleading requirements of the Private Securities Litigation Reform Act require specific examples of false company statements, tossing a proposed shareholder class action claiming Rigel Pharmaceuticals Inc. masked adverse results in a clinical trial of an experimental arthritis drug.

A three-judge panel agreed with U.S. District Judge Jeffrey S. White that the plaintiffs Inter-Local Pension Fund GCC/IBT had not specifically claimed that South San Francisco, Calif.-based Rigel had wrongly reported the results of their analysis, but had objected only to its statistical methodology, which the panel said does not amount to allegations of false statements under the PSLRA.

"The PSLRA imposes additional specific pleading requirements, including requiring plaintiffs to state with particularity both the facts constituting the alleged violation and the facts evidencing scienter," the panel said in the opinion. "Plaintiff is alleging that defendants should have used different statistical methodologies, not that defendants misrepresented the results they obtained from the methodologies they employed."

The ruling knocked over the plaintiffs' argument that they were contesting the truth of Rigel's claims about the safety and effectiveness of the experimental drug R788 that were based on results obtained from its allegedly flawed methodology.

The panel said courts consistently have ruled that making claims only about statistical methodologies is not enough to show that the company's statements on the results of the trial were false, according to the opinion.

The plaintiffs, a proposed class of shareholders who bought Rigel stock from December 2007 and February 2009, brought their suit in February 2010, claiming Rigel had trumpeted certain clinical trial results on patients in the U.S. and Mexico.

The suit claimed that the company had promoted results of the trial from the time it issued a December 2007 press release promising a "significant improvement" in rheumatoid arthritis patients, according to court documents.

Rigel's stock more than tripled the day of the press release, jumping from $8 to $25.95 per share, but in October 2008, the stock dropped from $14.41 a share to $8.84 a share after the company disclosed the full results from the tests, which revealed that the drug could pose heart health risks, along with other statistical imbalances of the drug results, according to their complaint.

Judge White of the California federal district court had tossed the suit in August 2010, finding that the plaintiffs had not sufficiently pleaded that Rigel had made false statements about the drug trial results, or shown that Rigel had purposely excluded certain results of the tests for the drug, according to court documents.

"The [lower] court concluded that the securities laws do not require that companies report information only from optimal studies, even assuming that scientists could agree on what is optimal, and that companies reporting information from imperfect studies are not required to disclose alternative methods for interpreting the data," the panel said Thursday. "The court therefore held that the plaintiffs did not plead facts sufficient to explain why the defendants' summaries of the study were false or misleading. We find this reasoning persuasive."

Circuit judges Proctor Hug Jr., Betty B. Fletcher and Richard A. Paez sat on the panel for the Ninth Circuit.

The plaintiffs are represented by Robbins Geller Rudman & Dowd LLP.

Rigel and others are represented by Cooley LLP.

The case is In re: Rigel Pharmaceuticals Inc. securities litigation, case number 10-17619, in the U.S. Court of Appeals for the Ninth Circuit.

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