United States Court of Appeals 

For the First Circuit 

No. 16-2057 

TERRY BRENNAN; RON KENNER; 

KEVIN KOZIATEK; JEFFREY BUTERBAUGH; 

DRAGON GATE MANAGEMENT, LTD; VINCENT RAMPE, 

Plaintiffs, Appellants, 

AVIAD BESSLER, individually and on behalf of all others 

similarly situated; THEODORE J. DALY, 

Plaintiffs, 

v. 

ZAFGEN, INC.; THOMAS E. HUGHES, 

Defendants, Appellees. 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF MASSACHUSETTS 

[Hon. F. Dennis Saylor, IV, U.S. District Judge] 

Before 

Kayatta, Circuit Judge, 

Souter, Associate Justice,*

and Stahl, Circuit Judge. 

 Jeffrey C. Block, with whom Joel A. Fleming, Block & Leviton 

LLP, Jacob A. Goldberg, Gonen Haklay, and The Rosen Law Firm, P.A. 

were on brief, for appellants. 

 Deborah S. Birnbach, with whom Kevin P. Martin, Adam Slutsky, 

Kate MacLeman, Joshua Bone, and Goodwin Procter LLP were on brief, 

for appellees. 

 * Hon. David H. Souter, Associate Justice (Ret.) of the 

Supreme Court of the United States, sitting by designation. 
April 7, 2017 
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STAHL, Circuit Judge. Following a significant drop in 

the share price of Zafgen, Inc., a biopharmaceutical developer 

based in Boston, Massachusetts, its investors brought a securities 

fraud class action suit against the company and its Chief Executive 

Officer, Dr. Thomas Hughes ("defendants"), pursuant to 

Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, 

15 U.S.C. §§ 78j(b) and 78(t)(a), and Securities and Exchange 

Commission Rule 10b-5, 17 C.F.R. § 240.10b-5. The investors' 

complaint1 focuses on several allegedly misleading statements made 

by the defendants regarding Zafgen's anti-obesity drug Beloranib. 

Specifically, the complaint alleges that the defendants disclosed 

some, but not all, of the thrombosis-related adverse events that 

occurred during Beloranib's clinical trials. The investors claim 

that these partial disclosures caused Zafgen's common stock to 

trade at artificially-inflated prices -- prices that plunged after 

a clinical patient taking Beloranib died and the Food and Drug 

Administration ("FDA") placed the drug on a partial clinical hold. 

Despite these allegations, the district court granted 

the defendants' motion to dismiss, concluding that the investors' 

complaint did not contain facts giving rise to a "cogent and 

compelling" inference of scienter as required under the Private 

 1 The investors filed their original complaint on October 21, 

2015, and amended that complaint on February 22, 2016. For the 

sake of clarity, we refer to this amended complaint as the 

"complaint" throughout this opinion. 
- 4 - 

Securities Litigation Reform Act of 1995 ("PSLRA"). Brennan v. 

Zafgen, Inc., 199 F. Supp. 3d 444, 471 (D. Mass. 2016) (quoting 

Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 324 

(2007)). We agree, and therefore affirm. 

I. 

We recite the facts as alleged in the complaint, 

supplemented by certain "materials [the] defendants filed in the 

district court in support of their motion to dismiss." Fire & 

Police Pension Ass'n of Colo. v. Abiomed, Inc., 778 F.3d 228, 232 

(1st Cir. 2015); see also Watterson v. Page, 987 F.2d 1, 3 (1st 

Cir. 1993) (noting that courts, when ruling on a motion to dismiss 

in securities fraud cases, often consider "documents the 

authenticity of which are not disputed by the parties," along with 

"official public records; . . . documents central to plaintiffs' 

claim[s]; [and] documents sufficiently referred to in the 

complaint"). 

Zafgen's stated goal is "to significantly improv[e] the 

health and well-being of patients affected by obesity and complex 

metabolic disorders." To that end, Zafgen has focused its efforts 

on developing Beloranib, a drug aimed at combating these 

conditions.2 Hughes, as Zafgen's Chief Executive Officer, oversaw 

 2 At all relevant times, Zafgen was a "one-drug company," 

meaning that Beloranib was Zafgen's only product candidate in 

clinical development. 
- 5 - 

Beloranib's clinical testing. While doing so, Hughes also steered 

Zafgen towards its initial public offering ("IPO"), which the 

company completed on June 19, 2014. The current dispute arises 

from the intersection of these two strategic endeavors. 

A. Beloranib and the FDA Approval Process 

As part of the development process, the FDA requires 

that any new drug "go through a series of clinical trials before 

it can be approved for marketing and sales in the United States." 

N.J. Carpenters Pension & Annuity Funds v. Biogen IDEC Inc., 537 

F.3d 35, 39 (1st Cir. 2008) (citation omitted). After a 

pharmaceutical developer finishes its initial testing of a drug on 

animals, it must then "submit[] an application to the FDA for 

approval to test the drug on humans." Id.; see also 21 C.F.R. 

§ 312.20. If the FDA approves that request, human testing begins. 

Typically, such testing consists of three phases of clinical 

trials.3 Biogen IDEC, 537 F.3d at 39; see also 21 C.F.R. § 312.21. 

 3 Our decision in Biogen IDEC ably summarized the objectives 

of these three phases: 

Phase I studies generally involve twenty to 

eighty subjects, and are designed to determine 

how the drug works in humans and the side 

effects associated with increasing doses. 

Phase II studies usually involve no more than 

several hundred subjects, and are designed to 

evaluate the effectiveness of the drug, as 

well as common short-term side effects and 

risks. Phase III studies are large-scale 

trials, usually involving several hundred to 

several thousand subjects, and are intended to 

gather the information necessary to provide an 
- 6 - 

Each phase "requires the company to test the drug on a broader 

population and results in more stringent monitoring and 

evaluation." Biogen IDEC, 537 F.3d at 39. Throughout the course 

of these trials, "the drug company must report to the FDA and to 

all participating physicians any serious and unexpected adverse 

drug experiences that occur." Id. (citing 21 C.F.R. 

§ 312.32(c)(1)(i)(A)). 

At the time the investors first brought this suit, Zafgen 

had conducted three Phase I trials, four Phase II trials, and one 

Phase III trial. The investors' complaint, however, concentrates 

on Zafgen's ZAF-201 trial, a Phase II trial that consisted of 160 

patients and lasted from August 2012 to May 2013. From this group 

of 160 patients, Zafgen treated 122 of them with Beloranib. As 

the ZAF-201 trial progressed, four of the patients given Beloranib 

suffered adverse "thrombotic," or blood-clotting, events of 

varying severity. Third-party clinical investigators classified 

two of these adverse events as "superficial" and the other two as 

"serious."4 Zafgen disclosed the two serious adverse events in 

 

adequate basis for labeling the drug. . . . 

After Phase III, the FDA considers the results 

of all the clinical trials in determining 

whether to approve a drug for market. 

Id. (internal citations omitted). 

4 An adverse event is "serious" if "it results in . . . 

[d]eath, a life-threatening adverse event, inpatient 

hospitalization or prolongation of existing hospitalization, a 

persistent or significant incapacity or substantial disruption of 
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advance of its IPO, noting their occurrence in its April 18, 2014 

Form S-1 Registration Statement. The company did not, however, 

directly disclose the two superficial adverse events at that time. 

B. Zafgen's Stock Price Declines 

Zafgen's share price began to decline in October 2015. 

On October 12th, Zafgen's share price closed at $34.76. By the 

close of trading the next day, Zafgen's share price had dropped to 

$15.75. On October 14th, Zafgen announced that a patient in its 

ongoing Phase III trial had died, and confirmed on October 16th 

that the patient had been treated with Beloranib, not a placebo, 

and that the FDA had placed Beloranib on a partial clinical hold. 

During a conference call held that same day, Dr. Dennis Kim, 

Zafgen's Chief Medical Officer, likewise informed analysts that a 

total of six adverse thrombotic events had occurred throughout the 

course of Beloranib's clinical testing: two in the company's 

ongoing clinical trials and four in the completed ZAF-201 trial. 

Dr. Kim's comments marked the first time that Zafgen or any of its 

representatives had informed its investors of the two superficial 

adverse thrombotic events that had occurred in the ZAF-201 trial. 

By the close of trading on October 16th, Zafgen's share price 

 

the ability to conduct normal life functions, or a congenital 

anomaly/birth defect," or where it "may require medical or surgical 

intervention to prevent one of [these] outcomes." 21 C.F.R. 

§ 312.32(a). 
- 8 - 

plummeted to $10.36 per share, a nearly 51% decline from the 

previous day's closing price. 

C. Zafgen's Disclosures 

Based on these events, the investors brought a class 

action suit against Zafgen and Hughes. The complaint asserted 

claims on behalf of a putative class consisting of all persons who 

purchased or otherwise acquired Zafgen common stock between 

June 19, 2014, the date of Zafgen's IPO, and October 16, 2015, the 

date the company announced the FDA's partial clinical hold. In 

the complaint, the investors claimed that the defendants made false 

or misleading statements concerning the results of the ZAF-201 

trial, to wit: 

 As severely obese patients are at an increased 

risk for cardiovascular disease, we measured 

systemic biomarkers of cardiovascular disease 

risk, including low density lipoprotein 

cholesterol, HDL, CRP, triglycerides and blood 

pressure in trial participants, to determine 

[B]eloranib's impact on such biomarkers. The 

results of these biomarker measurements in 

this trial, as summarized below, suggest that 

[B]eloranib treatment does not increase the 

risk of cardiovascular disease and may be 

associated with reduced cardiovascular 

disease risk.

 There were no deaths or any SAEs ["serious 

adverse events"] deemed to be possibly, 

probably, or definitely related to 

[B]eloranib, although there were two serious 

thrombotic adverse events which, while not 

attributed to [B]eloranib treatment, may point 

to the utility of assessment of prior history 

of thrombotic events in patients enrolled in 

subsequent trials and added vigilance for AEs 
- 9 - 

related to blood clotting during future 

clinical trials. The most commonly reported 

TEAEs ["treatment-emergent adverse events"] 

were gastrointestinal disorders, mainly 

nausea, diarrhea, or vomiting, nervous system 

disorders, mainly dizziness, and psychiatric 

disorders, mainly insomnia, sleep disorder, or 

abnormal dreams. TEAEs were generally mild in 

severity and transient. Other frequently 

reported TEAEs were headaches and injection 

site bruising/itching, although the 

incidences were comparable to placebo and not 

observed to be dose-related. 

The investors alleged that Zafgen made these statements 

(and others that used substantially similar language) in ten 

different documents, all of which Hughes signed. These 

disclosures, the investors maintained, were materially misleading 

because "the FDA considers the frequency/rate of adverse events in 

determining whether a drug is causing those adverse events," 

meaning that the defendants should have disclosed even the 

superficial adverse thrombotic events. Similarly, the investors 

alleged that "[a]t all times during the Class Period, [d]efendants 

knew -- or were reckless in not knowing -- that there was a 

significant risk of thrombotic adverse events in future clinical 

trials of [B]eloranib." 

In response to the investors' allegations, the 

defendants emphasize several other statements made by Zafgen in 

its Form S-1 and its subsequent SEC filings, claiming that these 

additional disclosures belie the investors' accusations of 

fraudulent intent: 
- 10 - 

 SAEs that are not characterized by clinical 

investigators as possibly related to 

[B]eloranib or SAEs that occur in small 

numbers may not be disclosed to the public 

until such time the various documents 

submitted to the FDA as part of the approval 

process are made public. We are unable to 

determine if the subsequent disclosure of SAEs 

will have an adverse effect on our stock 

price. 

 

 Many companies in the pharmaceutical and 

biotechnology industries have suffered 

significant setbacks in late stage clinical 

trials after achieving positive results in 

early-stage development, and we cannot be 

certain that we will not face similar 

setbacks. These setbacks have been caused by, 

among other things, pre-clinical findings made 

while clinical trials were underway or safety 

or efficacy observations made in clinical 

trials, including previously unreported 

adverse events. 

D. The District Court's Dismissal of the Complaint 

On August 9, 2016, the district court granted Zafgen and 

Hughes's motion to dismiss on the ground that the investors had 

failed to adequately plead scienter.5 With respect to the 

investors' Section 10(b) claim, the district court determined that 

the complaint's allegations were only marginally material, thus 

weakening any inference of scienter. The district court then also 

 5 The district court found that the only materially misleading 

statements alleged in the complaint concerned the defendants' 

failure to disclose the non-serious adverse thrombotic events. 

Neither the investors nor the defendants dispute this feature of 

the district court's ruling. 
- 11 - 

dismissed the investors' Section 20(a) claim against Hughes. This 

appeal followed. 

II. 

The investors argue that the district court improperly 

heightened the PSLRA's pleading requirements, applied these 

heightened requirements to its complaint, and then mistakenly 

dismissed both their claims for failing to plead facts giving rise 

to a "strong inference" of scienter. We review whether a complaint 

meets the PSLRA's pleading requirements de novo, accepting all 

well-pled factual allegations as true and making all reasonable 

inferences in a plaintiff's favor. See Miss. Pub. Emps.' Ret. 

Sys. v. Bos. Sci. Corp., 523 F.3d 75, 85 (1st Cir. 2008). Even 

through this lens, we agree with the district court that the facts 

alleged in the investors' complaint do not give rise to a 

sufficiently strong inference of scienter. 

A. Section 10(b) and Rule 10b-5 

Section 10(b) of the Securities Exchange Act "forbids 

the 'use or employ, in connection with the purchase or sale of any 

security . . . , [of] any manipulative or deceptive device.'" 

Tellabs, Inc., 551 U.S. at 318 (alterations in original) (quoting 

15 U.S.C. § 78j(b)). Pursuant to this statute, SEC Rule 10b-5 

makes it unlawful to, among other things, "make any untrue 

statement of a material fact or to omit to state a material fact 

necessary in order to make the statements made, in the light of 
- 12 - 

the circumstances under which they were made, not misleading." 17 

C.F.R. § 240.10b-5(b). Therefore, to state a claim for securities 

fraud under Section 10(b) and Rule 10b-5, "a plaintiff must allege: 

(1) a material misrepresentation or omission; (2) scienter, or a 

wrongful state of mind; (3) in connection with the purchase or 

sale of a security; (4) reliance; (5) economic loss; and (6) loss 

causation." In re Genzyme Corp. Sec. Litig., 754 F.3d 31, 40 (1st 

Cir. 2014). 

B. Scienter and the PSLRA 

Scienter encompasses a "mental state embracing [an] 

intent to deceive, manipulate, or defraud." Ernst & Ernst v. 

Hochfelder, 425 U.S. 185, 193 n.12 (1976). At the pleading stage, 

the PSLRA requires plaintiffs to "state with particularity facts 

giving rise to a strong inference that the defendant acted with" 

scienter. 15 U.S.C. § 78u-4(b)(2)(A); see also ACA Fin. Guar. 

Corp. v. Advest, Inc., 512 F.3d 46, 58 (1st Cir. 2008) (describing 

the PSLRA's pleading standard for scienter as "rigorous"). In the 

current setting, scienter encompasses both a "conscious intent to 

defraud" and, alternatively, a "high degree of recklessness." ACA 

Fin. Guar. Corp., 512 F.3d at 58 (quoting Aldridge v. A.T. Cross 

Corp., 284 F.3d 72, 82 (1st Cir. 2002)). Specifically, 

recklessness involves "a highly unreasonable omission" that 

involves "not merely simple, or even inexcusable, negligence, but 

an extreme departure from the standards of ordinary care, and which 
- 13 - 

presents a danger of misleading buyers and sellers that is either 

known to the defendant or is so obvious that the actor must have 

been aware of it." Greebel v. FTP Software, Inc., 194 F.3d 185, 

198 (1st Cir. 1999) (quoting Sundstrand Corp. v. Sun Chem. Corp., 

553 F.2d 1033, 1045 (7th Cir. 1977)).6

Meanwhile, "[t]o qualify as 'strong' . . . an inference 

of scienter must be more than merely plausible or reasonable -- it 

must be cogent and at least as compelling as any opposing inference 

of nonfraudulent intent." Tellabs, 551 U.S. at 314. When 

evaluating a complaint for compliance with this demanding 

standard, a court "must consider the complaint in its entirety 

. . . [Courts must ask] whether all the facts alleged, taken 

collectively, give rise to a strong inference of scienter, not 

whether any individual allegation, scrutinized in isolation, meets 

that standard." Id. at 322-23. To that effect, we have found the 

standard met where a complaint "contains clear allegations of 

admissions, internal records or witnessed discussions suggesting 

that at the time they made the statements claimed to be misleading, 

the defendant[s] were aware that they were withholding vital 

information or at least were warned by others that this was so." 

 6 "Even if plaintiffs wish to prove scienter by 

'recklessness,' they still must allege, with sufficient 

particularity, that defendants had full knowledge of the dangers 

of their course of action and chose not to disclose those dangers 

to investors." Maldonado v. Dominguez, 137 F.3d 1, 9 n.4 (1st 

Cir. 1998). 
- 14 - 

In re Bos. Sci. Corp. Sec. Litig., 686 F.3d 21, 31 (1st Cir. 2012). 

Likewise, a plaintiff "may combine various [other] facts and 

circumstances indicating fraudulent intent," including those 

demonstrating "motive and opportunity," to satisfy the scienter 

requirement. Aldridge, 284 F.3d at 82. 

Here, the investors maintain that they met the PSLRA's 

requirements for pleading scienter. They hinge this argument on 

their allegations that the defendants (1) knew, or were reckless 

in not knowing, about news and scientific articles that purportedly 

established a "link" between Beloranib and the occurrence of 

thrombotic adverse events; and (2) had a motive to commit 

securities fraud, as shown by Zafgen's compensation structure and 

the "heavy" insider sales that occurred before the patient death. 

We find these arguments unpersuasive, and therefore hold that the 

complaint's allegations, viewed holistically, do not support a 

strong inference of scienter under either a conscious intent or 

recklessness theory. 

1. News and Scientific Articles

To start, the investors' reliance on news and scientific 

articles analyzing the effects of angiogenesis inhibitors, the 

class of drug to which Beloranib belongs, is misplaced. "The key 

question in this case is not whether defendants had knowledge of 

certain undisclosed facts, but rather whether the defendants knew 

or should have known that their failure to disclose those facts" 
- 15 - 

risked misleading investors. City of Dearborn Heights Act 345 

Police & Fire Ret. Sys. v. Waters Corp., 632 F.3d 751, 758 (1st 

Cir. 2012) (internal citation omitted). Here, though the articles 

may suggest that the defendants had an awareness of some connection 

between Beloranib and thrombotic events, they do not show that the 

defendants deliberately or recklessly risked misleading investors 

by not disclosing the two superficial adverse thrombotic events 

from the ZAF-201 study until October 16, 2015. See In re NVIDIA 

Corp. Sec. Litig., 768 F.3d 1046, 1060 (9th Cir. 2014) (noting 

that the articles cited by the plaintiffs did not contribute to a 

strong inference of scienter, in part because they "d[id] not 

reflect [the defendants'] knowledge" at the time of the alleged 

misstatements). 

For example, two of the cited articles simply analyze 

the general effects of angiogenesis inhibitors. Three other 

articles, meanwhile, examine clinical trials conducted for drugs 

other than Beloranib which were used to treat cancer, not severe 

obesity. Moreover, developers often administered these other 

drugs at significantly higher dosage levels compared to those 

dispensed in the ZAF-201 study.7 Of those articles that did discuss 

Beloranib, several suggested that lower doses of the drug reduced 

 7 For instance, doses in the cancer trials often exceeded 

50 mg of angiogenesis inhibitors, while Beloranib doses in the 

2012-2013 ZAF-201 clinical trial, ranged from 0.6 mg to 2.4 mg. 
- 16 - 

the risk of potential thrombotic-related side effects in patients 

being treated for obesity-related ailments. 

Taken together, the articles do not add much support for 

the complaint's allegation that the defendants knew, or were 

reckless in not knowing, that they risked misleading investors 

unless they disclosed the two superficial adverse thrombotic 

events. See In re Ariad Pharm., Inc. Sec. Litig., 842 F.3d 744, 

751 (1st Cir. 2016) (noting that "[a] statement cannot be 

intentionally misleading if the defendant did not have sufficient 

information at the relevant time to form an evaluation that there 

was a need to disclose certain information and to form an intent 

not to disclose it" (alteration in original) (quoting Biogen IDEC, 

537 F.3d at 45)). This conclusion is especially warranted where, 

as here, the complaint contains no specific facts about any 

"warnings by subordinates or expressions of concern by executives" 

regarding the propriety of allegedly deceptive disclosures. See 

Auto Indus. Pension Tr. Fund v. Textron Inc., 682 F.3d 34, 39 (1st 

Cir. 2012).8

 8 This is not to say that a plaintiff in a securities case 

governed by the PSLRA must plead the existence of direct evidence 

of scienter to avoid dismissal. As the investors point out, an 

investor's access to such information prior to discovery will often 

be limited at best. Nonetheless, it stands to reason that where 

a complaint is devoid of any direct-evidence allegations, the 

indirect-evidence allegations in the complaint will need to do 

more work to carry the burden of raising a "strong inference of 

scienter" on their own. See Local No. 8 IBEW Ret. Plan & Tr. v. 

Vertex Pharm., Inc., 838 F.3d 76, 83 n.9 (1st Cir. 2016) 
- 17 - 

2. Motive and Insider Trading Allegations 

The complaint's motive allegations are similarly 

deficient. First, the investors focus on Zafgen's compensation 

structure, namely that "a significant portion of [its] executives' 

annual compensation consists of 'Option Awards' and 'Non-Equity 

Incentive Plan Compensation' (i.e., 'performance-based cash 

bonuses')." They allege that this structure resulted in Zafgen 

insiders, armed with undisclosed information regarding the ZAF201 study results, selling substantial amounts of company shares 

in September 2015. Hughes, for instance, sold 22,500 of his Zafgen 

shares on September 17, 2015, and another 23,126 shares on 

September 18, 2015, generating approximately $1.8 million in 

personal proceeds. 

Of course, even "weak[]" insider trading allegations 

provide "some support against the defendants' motion to dismiss." 

Miss. Pub. Emps.' Ret. Sys., 523 F.3d at 92 (quoting Shaw v. Dig. 

Equip. Corp., 82 F.3d 1194, 1224 (1st Cir. 1996)). Still, "[t]he 

vitality of the inference to be drawn depends on the facts, and 

can range from marginal to strong." Greebel, 194 F.3d at 197-98 

(internal citations omitted). Here, the district court found that 

 

(acknowledging that "prior to discovery, few plaintiffs will be in 

a position to make specific allegations about the form of internal 

documents" or discussions, but also noting that Congress has 

nonetheless "deliberately raised the entry bar to discovery . . . 

through the PSLRA's heightened pleading standards" (alteration in 

original) (quoting Textron, 682 F.3d at 40)). 
- 18 - 

the insider trading alleged in the complaint was insubstantial. 

On appeal, the investors do not challenge the district court's 

finding to that effect, instead arguing that the district court 

erroneously drew a negative inference against scienter based on 

the weakness of their allegations. Not so. Rather, the district 

court observed that the insider trading allegations in this case 

"are relatively weak" and therefore found that the allegations 

"d[id] not alter the conclusion that the complaint as a whole fails 

to raise a strong inference of scienter." Brennan, 199 F. Supp. 

3d at 468. 

In any event, we agree with the district court that the 

strength of the insider trading allegations drifts toward the 

marginal end of that spectrum because Hughes and all other Zafgen 

insiders kept the vast majority of their Zafgen holdings. After 

accounting for Hughes's vested options, he retained at least 93% 

of his Zafgen holdings even after the September 2015 sales, and 

every other insider identified in the complaint retained at least 

85%. See Waters Corp., 632 F.3d at 760-61 ("In calculating the 

percent of holdings sold, . . . it is appropriate to consider not 

only the shares of stock that [the defendants] held prior to their 

sales, but also the shares that they could have sold through the 

exercise of options . . . ."). Moreover, all of the insider sales 

happened before the patient death that occurred during Zafgen's 

Phase III testing. As the district court noted: 
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During the October 16 conference call, which 

occurred almost a month after the final 

insider sale on September 18, Hughes stated 

that Zafgen disclosed the patient death to the 

FDA approximately two weeks earlier, and "well 

within" the one week requirement from the 

death to the FDA disclosure. Thus, even 

liberally construed, the complaint's 

allegations support an inference that the 

patient death occurred at least a week after 

the final insider sale. 

Brennan, 199 F. Supp. 3d at 469. Therefore, neither the timing 

nor the amount of insider sales is particularly unusual or 

suspicious.9

Second, the complaint asserts that Zafgen was a one-drug 

company, meaning Zafgen and Hughes had a motive to "shade the 

truth" since all of the company's hopes, and a significant portion 

of Hughes's compensation, hinged on Beloranib's success. However, 

such "catch-all allegations," which merely assert the existence of 

a motive and an opportunity to engage in fraudulent behavior, do 

not satisfy the PSLRA "without something more." In re Cabletron 

Sys., Inc., 311 F.3d 11, 39 (1st Cir. 2002) (quoting Greebel, 194 

F.3d at 197); see also Aldridge, 284 F.3d at 83 (noting that 

generalized financial incentive allegations are relevant to the 

scienter analysis only if they "go far beyond the usual 

arrangements of compensation based on the company's earnings"). 

 9 We decline to address the parties' arguments concerning the 

defendants' 10b5-1 trading plans, see 17 C.F.R. § 240.10b5-1(c), 

because the investors' allegations regarding the purported insider 

trading are insufficient even without considering those plans. 
- 20 - 

Here, the complaint only identifies "the usual concern by 

executives to improve financial results." Cabletron, 311 F.3d at 

39. Given that we must take into account the opposing inferences 

stemming from a complaint's allegations, we find it difficult to 

infer fraudulent intent simply because the defendants' 

compensation structure rewards the achievement of corporate goals. 

See In re Rigel Pharm., Inc. Sec. Litig., 697 F.3d 869, 884 (9th 

Cir. 2012) (noting that "it is common for executive compensation 

. . . to be based partly on the executive's success in achieving 

key corporate goals" and that it would be improper to "conclude 

that there is fraudulent intent merely because a defendant's 

compensation was based in part on such successes"). Consequently, 

we assign these allegations little weight in the scienter calculus. 

3. Other Considerations 

Several other considerations also bolster our conclusion 

that the complaint's allegations do not give rise to a sufficiently 

strong inference of scienter. To start, the marginal materiality 

of the two superficial adverse thrombotic events undermines such 

a finding. As we have previously noted, "the materiality and 

scienter inquiries are linked," Abiomed, 778 F.3d at 240, since 

"the marginal materiality of an omitted fact 'tends to undercut 

the argument that the defendants acted with the requisite intent 

. . . in not disclosing' it," Ariad, 842 F.3d at 750 (citing 

Abiomed, 778 F.3d at 242). Thus, we must consider whether there 
- 21 - 

is "a substantial likelihood that" a reasonable investor would 

have viewed the disclosure of the two superficial adverse 

thrombotic events "as having significantly altered the total mix 

of information made available." Basic Inc. v. Levinson, 485 U.S. 

224, 231-32 (1988). 

The investors' arguments to this effect are 

unconvincing. "Adverse event reports are daily events in the 

pharmaceutical industry." Matrixx Initiatives, Inc. v. 

Siracusano, 563 U.S. 27, 43 (2011). To be sure, these reports may 

be material even if they "d[o] not provide statistically 

significant evidence of a causal link." Id. at 44. Nonetheless, 

it remains unlikely that a reasonable investor in this case would 

have viewed the two superficial adverse thrombotic events, at the 

time they occurred, as having significantly altered the 

information available to them. Zafgen forthrightly disclosed the 

two serious adverse thrombotic events to investors, and thirdparty investigators never linked any of the adverse events, 

including the serious ones, to Beloranib. Indeed, the superficial 

adverse thrombotic events took on the bulk of their significance 

only after the patient death. See ACA Fin. Guar. Corp., 512 F.3d 

at 62 ("A plaintiff may not plead 'fraud by hindsight'; i.e., a 

complaint 'may not simply contrast a defendant's past optimism 

with less favorable actual results' in support of a claim of 

securities fraud." (quoting Shaw, 82 F.3d at 1223)). 
- 22 - 

In response, the investors claim that because the FDA 

looks to the overall frequency of adverse thrombotic events when 

evaluating a drug's safety, all adverse thrombotic events must be 

material. This argument, however, ignores the Supreme Court's 

observation that "the mere existence of reports of adverse events 

-- which says nothing in and of itself about whether the drug is 

causing the adverse events -- will not satisfy" the materiality 

standard. Matrixx Initiatives, 563 U.S. at 44. Instead, 

"[s]omething more is needed." Id. In this case, neither "the 

source, content, [nor] context of the reports" provides that 

"[s]omething more." Id. Although a pharmaceutical developer must 

report all adverse events when filing a New Drug Application with 

the FDA, it need not disclose every superficial adverse event until 

it reaches that stage of clinical development. See 21 C.F.R. § 

312.33(b)(1) (stating that developers, in their annual reports to 

the FDA, must disclose summary information "showing the most 

frequent and the most serious" adverse events observed during that 

year's clinical and nonclinical drug investigations). Thus, even 

the accuracy of the investors' core assumption, that the FDA cared 

about the superficial adverse thrombotic events at the time they 

occurred, seems doubtful, further diminishing the materiality of 

these events to reasonable investors. See Bos. Sci. Corp., 686 

F.3d at 31 (stating that "marginal materiality not only defeats 

any independent inference of deliberate withholding but also makes 
- 23 - 

the pled facts insufficient for a fact finder to find the 'extreme 

recklessness in not disclosing the fact' that is the least that is 

required to establish scienter" (quoting Waters Corp., 632 F.3d at 

757)). 

We also note that Zafgen's own disclosures both before 

and during the class period weaken the complaint's scienter 

showing. The defendants disclosed to investors the two serious 

adverse thrombotic events, and noted on several occasions that the 

company was not going to disclose all the adverse events as they 

occurred. Although "[f]ragmentary information may be as 

misleading . . . as active misrepresentation," V.S.H. Realty, Inc. 

v. Texaco, Inc., 757 F.2d 411, 414-15 (1st Cir. 1985) (alteration 

in original) (citation omitted), the facts alleged in the complaint 

at the very least support a strong competing inference that the 

defendants disclosed what they considered to be, at the time, the 

most relevant information about Beloranib's clinical trials. 

The investors respond by pointing to literature from the 

Centers for Disease Control and Prevention ("CDC") that they claim 

suggests that it is merely "fortuitous" for a blood clot to be 

non-serious. According to the investors, this report, coupled 

with the defendants' statement acknowledging the possible "utility 

of assessment of prior history of thrombotic events . . . and added 

vigilance for [adverse events] related to blood clotting during 

future clinical trials," shows that their decision to not disclose 
- 24 - 

the two non-serious thrombotic events was made intentionally or 

recklessly. However, while the CDC's language cited in the 

complaint suggests that it may be true that "[h]ow a clot affects 

the body depends on the type and location of the clot," it does 

not mean that good fortune is all that separates a superficial 

thrombotic adverse event from a more serious one. Instead, the 

FDA's regulations, which do not require the disclosure of all 

thrombotic events, see 21 C.F.R. 312.33(b)(1), and the defendants' 

own disclosures, which informed investors of the most serious 

adverse events and warned investors that Zafgen would not disclose 

all adverse events as they occurred, undercut the investors' 

efforts to make this showing. 

In short, although the investors maintain that Zafgen's 

statements prove the company acknowledged that even superficial 

adverse events were important to investors, the totality of the 

company's disclosures produces a compelling counter-inference that 

the company wished to "provide investors with warnings of risks," 

actions which "generally weaken the inference of scienter." Waters 

Corp., 632 F.3d at 760 (quoting Ezra Charitable Tr. v. Tyco Int'l, 

Ltd., 466 F.3d 1, 8 (1st Cir. 2006)). Thus, the defendants' 

disclosures both before and during the class period further 

"undercut any inference of fraudulent intent on the part of 

defendants." Genzyme Corp., 754 F.3d at 42. 
- 25 - 

III. 

The investors concede that their Section 20(a) claim 

against Hughes is derivative of their Section 10(b) and Rule 10b-5 

claim. Because we hold that the complaint, considered as a whole, 

does not present allegations giving rise to a "cogent and 

compelling" inference of scienter, Tellabs, 551 U.S. at 324, we 

conclude that the district court properly dismissed both claims. 

Therefore, the judgment of the district court is affirmed.