Court Opinion

ID: 6342256
Source: CourtListenerOpinion
Date Created: 2022-05-19 17:01:06.116407+00
Date Added: 2024-06-11T09:15:18.352087
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

IN RE NEKTAR THERAPEUTICS                No. 21-15170
SECURITIES LITIGATION,
                                            D.C. No.
                                         4:18-cv-06607-
OKLAHOMA FIREFIGHTERS PENSION                 HSG
AND RETIREMENT SYSTEM; EL PASO
FIREMEN & POLICEMENS PENSION
FUND, Lead Plaintiffs,                     OPINION
              Plaintiffs-Appellants,

                 v.

NEKTAR THERAPEUTICS; HOWARD
W. ROBIN; STEPHEN K. DOBERSTEIN;
JONATHAN ZALEVSKY,
             Defendants-Appellees.

     Appeal from the United States District Court
       for the Northern District of California
   Haywood S. Gilliam, Jr., District Judge, Presiding

       Argued and Submitted December 10, 2021
                 Pasadena, California

                  Filed May 19, 2022

   Before: Milan D. Smith, Jr., Kenneth K. Lee, and
          Danielle J. Forrest, Circuit Judges.

                 Opinion by Judge Lee
2     IN RE NEKTAR THERAPEUTICS SECURITIES LITIG.

                          SUMMARY *

                        Securities Fraud

    The panel affirmed the district court’s dismissal of a
Second Amended Complaint in which two public pensions
sued Nektar Therapeutics for securities fraud, alleging that
Nektar misleadingly relied on outlier data from a single
patient during the Phase 1 clinical trial of its anti-cancer
drug, NKTR-214.

    The panel affirmed for two reasons.

     First, Plaintiffs have not adequately alleged falsity under
section 10(b) of the Securities Exchange Act of 1934, 15
U.S.C. § 78j(b), and Securities and Exchange Commission
Rule 10b-5, 17 C.F.R. § 240.10b-5. The panel wrote that the
complaint fails to articulate why Nektar’s statements about
the Phase 1 clinical trial would be materially misleading to
investors, even assuming Nektar relied on outlier data. The
panel wrote that Plaintiffs do not sufficiently explain what
the clinical trial would have shown without the alleged
outlier data, nor do they specify how that would have
affected the investing public’s assessment of the drug. The
panel wrote that for all we know, the clinical trial could have
still shown excellent results, even without the data from the
supposed outlier patient.

   Second, Plaintiffs did not plausibly allege loss causation.
The panel wrote that nothing in the operative complaint
suggests that Nektar’s disclosure of its later Phase 1/2
    *
      This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
      IN RE NEKTAR THERAPEUTICS SECURITIES LITIG.              3

clinical trial results uncovered the “falsity” of the earlier
Phase 1 trial, thus causing the drop in stock price. Rather,
Plaintiffs’ factual allegations suggest a more mundane
explanation: the different and more robust Phase 1/2 clinical
trial merely showed that the drug may not be as effective as
the initial – and limited – Phase 1 clinical trial had suggested.
Further, Plaintiffs’ reliance on an anonymous and self-
interested short-seller’s internet musings about Nektar’s
Phase 1 EXCEL clinical trial does not show loss causation.

                         COUNSEL

Alec T. Coquin (argued), Michael P. Canty, and Thomas G.
Hoffman Jr., Labaton Sucharow LLP, New York, New
York; James M. Wagstaffe, Wagstaffe von Loewenfeldt
Busch & Radwick LLP, San Francisco, California; for
Plaintiffs-Appellants.

Robin Wechkin (argued), Sidley Austin LLP, Issaquah,
Washington; Sara B. Brody and Zarine S. Alam, Sidley
Austin LLP, San Francisco, California; Matthew J. Dolan,
Sidley Austin LLP, Palo Alto, California; for Defendants-
Appellees.

                          OPINION

LEE, Circuit Judge:

    Experimental drug candidates do not always live up to
their potential, even if initial clinical trials yield highly
promising results. But, as this case illustrates, that does not
mean that a pharmaceutical company has defrauded the
investing public.
4     IN RE NEKTAR THERAPEUTICS SECURITIES LITIG.

     In 2017, Nektar Therapeutics touted the results from a
Phase 1 clinical trial (dubbed “EXCEL”) of its anti-cancer
drug. The next year, however, a different and more
comprehensive Phase 1/2 clinical trial (called “PIVOT”)
showed that the drug was not as effective as the initial trial
had suggested. Nektar’s share price plunged over 40
percent. Two public pensions then sued Nektar for securities
fraud, alleging that Nektar misleadingly relied on outlier
data from a single patient during the Phase 1 EXCEL clinical
trial. The district court dismissed their operative complaint
with prejudice.

    We affirm for two reasons. First, Plaintiffs have not
adequately alleged falsity under section 10(b) of the
Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and
Securities and Exchange Commission Rule 10b-5, 17 C.F.R.
§ 240.10b-5. The complaint fails to articulate why Nektar’s
statements about the Phase 1 EXCEL clinical trial would be
materially misleading to investors, even assuming Nektar
relied on outlier data. Plaintiffs do not sufficiently explain
what the clinical trial would have shown without the alleged
outlier data, nor do they specify how that would have
affected the investing public’s assessment of the drug. For
all we know, the clinical trial could have still shown
excellent results, even without the data from the supposed
outlier patient. Without specific allegations to connect the
dots, Plaintiffs’ theory fails to plead securities fraud.

     Second, Plaintiffs have not plausibly alleged loss
causation. Nothing in the operative complaint suggests that
Nektar’s disclosure of its later Phase 1/2 PIVOT clinical trial
results uncovered the “falsity” of the earlier Phase 1 EXCEL
trial, thus causing the drop in stock price. Rather, Plaintiffs’
factual allegations suggest a more mundane explanation: the
different and more robust Phase 1/2 PIVOT clinical trial
        IN RE NEKTAR THERAPEUTICS SECURITIES LITIG.                    5

merely showed that the drug may not be as effective as the
initial—and limited—Phase 1 EXCEL clinical trial had
suggested. Further, Plaintiffs’ reliance on an anonymous
and self-interested short-seller’s internet musings about
Nektar’s Phase 1 EXCEL clinical trial does not show loss
causation.

                         BACKGROUND

I. Nektar’s NKTR-214 anti-cancer drug does not
   replicate the results from the first Phase 1 EXCEL
   clinical trial in its later Phase 1/2 PIVOT trial.

    Nektar researches and develops new drugs for cancer,
autoimmune disease, and chronic pain. 1 Its flagship drug
candidate is NKTR-214, a modified version of a human
protein that activates the body’s production of cancer-
fighting cells. NKTR-214 stimulates the production of
CD8+ T cells, which kill infected or malignant cells.

     As part of NKTR-214’s development, Nektar carried out
a Phase 1 clinical trial dubbed EXCEL. During the EXCEL
trial, 28 cancer patients received dosages of NKTR-214
every two or three weeks, and then tissue samples were
collected, divided, and analyzed to assess the drug’s
effectiveness.

    As the EXCEL trial progressed, Nektar reported interim
results at various points. At a healthcare conference in 2017,
Nektar’s CEO Howard Robin presented a chart that
displayed data from EXCEL showing that “cancer-fighting
cells increased by an average of 30-fold in tumors of
    1
      These facts come from the second amended complaint and are
accepted as true for this appeal. See Nguyen v. Endologix, Inc., 962 F.3d
405, 408 (9th Cir. 2020).
6    IN RE NEKTAR THERAPEUTICS SECURITIES LITIG.

purportedly ten patients dosed with NKTR-214.” This so-
called “30-fold chart” undergirds this securities fraud
lawsuit.

   Because the 30-fold chart underpins this case, we will
describe it in some detail. As alleged in the complaint, the
chart first appeared under the title “Analysis of T cell
Populations in Tumor”:
        IN RE NEKTAR THERAPEUTICS SECURITIES LITIG.                    7

    It shows the “fold change” 2 of two types of cells: CD8+
and Tregs. 3 Thus, the x-axis displays the cell type, while the
y-axis displays the fold change. The chart shows a 29.8-fold
change for CD8+ cells. The chart includes information
explaining that the fold change was calculated by measuring
the cells “predose” and then at Week 3 of dosing. It also
explains that the chart reflects data from “N = 10 patients.”
In layman’s language, the chart shows that cancer-fighting
cells increased an average of about 30-fold among 10
patients after taking Nektar’s drug. Nektar presented this 30-
fold chart at many conferences.

     After the promising results from the Phase 1 EXCEL
trial, Nektar launched a second clinical trial called PIVOT.
PIVOT evaluated the effectiveness of NKTR-214 when
dosed along with another drug called Opdivo. Nektar
released Phase 1/2 data from PIVOT on Saturday, June 2,
2018. The reported data showed that “the overall response
rate for NKTR-214 in treating melanoma had declined from
the 85% rate presented the previous November to 50%.”
When the markets opened on Monday, Nektar’s stock price
plummeted from $90.35 to $52.57, a dip of about 42%.

II. Anonymous short-shellers accuse Nektar of relying
    on outlier data in its first Phase 1 EXCEL clinical
    trial.

    About four months later, anonymous short-sellers
released a report, dubbed the Plainview Report, that outlined

    2
       Fold change measures how much a quantity changes between an
initial and final measurement. It is derived by dividing the final
measurement by the initial measurement.
     3
       Tregs are Regulatory T cells that regulate and suppress the immune
system. They are not at issue in this case.
8      IN RE NEKTAR THERAPEUTICS SECURITIES LITIG.

why its authors believed NKTR-214 to be less effective than
Nektar claimed. The Plainview Report claimed that a
different chart displayed by Nektar—“Figure 6”—
demonstrated the falsity of the 30-fold chart. Figure 6
presented data on CD8+ T Cell changes in 7 of the 28
patients in the EXCEL trial.

    Figure 6 showed that one patient in the EXCEL trial,
Patient 14, saw an increase in CD8+ T cells of roughly 300-
fold, while the other six patients saw more modest increases.
The Plainview Report claimed that Patient 14 was among the
10 patients reflected in the 30-fold chart, thus skewing the
data in that chart. The Plainview Report also contained a
disclaimer that its authors “make no representation, express
or implied, as to the accuracy, timeliness, or completeness of
any such information” in the report. On the same day that
the Plainview Report was published, Nektar’s stock price
declined by seven percent.

III.    Two public pensions sue Nektar for securities
        fraud.

   The Oklahoma Firefighters Pension and Retirement
System, along with the El Paso Firemen & Policemen’s
      IN RE NEKTAR THERAPEUTICS SECURITIES LITIG.             9

Pension Fund (collectively, “the Pensions”) sued Nektar and
some of its current and former employees in October 2018.
They then filed an amended complaint after being appointed
lead plaintiffs. The district court, however, granted Nektar’s
motion to dismiss the first amended complaint without
prejudice.

    The Pensions then filed a second amended complaint.
The complaint alleged that Nektar made materially
misleading statements or omissions by touting its 30-fold
chart without disclosing that Patient 14’s outlier data was
included in the average. To support that allegation, the
complaint cited the Plainview Report and its analysis linking
Figure 6 to the 30-fold chart.

    The complaint also included statements by Confidential
Witness #2 (“CW #2”), who worked in Clinical
Development Operations at Nektar throughout the Class
Period and “closely monitored the incoming data” for
NKTR-214. CW #2 stated that Patient 14 was the sole
outlier included in the EXCEL trial, and that the 30-fold
increase would have been “nowhere near” as large without
Patient 14’s data. CW #2 also described how Nektar
changed trial reporting deadlines for the PIVOT trial so that
positive results would make their way into presentations
while negative results would be left out. Further, CW #2
stated that scientists working at Nektar disagreed with these
practices and with the inclusion of outlier data in
presentations on trial results.

    The district court again dismissed the complaint, this
time with prejudice. The district court held that the Pensions
failed to adequately plead falsity, scienter, or loss causation.
The Pensions timely appealed, and we have jurisdiction to
review the dismissal order under 28 U.S.C. § 1291.
10    IN RE NEKTAR THERAPEUTICS SECURITIES LITIG.

                STANDARD OF REVIEW

    We review de novo the district court’s dismissal of the
complaint. Levi v. Atossa Genetics, Inc. (In re Atossa
Genetics Inc. Sec. Litig.), 868 F.3d 784, 793 (9th Cir. 2017).
The court must accept all well-pleaded allegations as true.
Lloyd v. CVB Fin. Corp., 811 F.3d 1200, 1205 (9th Cir.
2016). We also consider the complaint as a whole. Tellabs,
Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322
(2007).

    To survive a Rule 12(b)(6) motion, a plaintiff must plead
“enough facts to state a claim to relief that is plausible on its
face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
A claim is facially plausible when a plaintiff pleads “factual
content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct
alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

    Securities fraud complaints face heightened pleading
requirements. “At the pleading stage, a complaint stating
claims under section 10(b) and Rule 10b-5 must satisfy the
dual pleading requirements of Federal Rule of Civil
Procedure 9(b) and the [Private Securities Litigation Reform
Act (PSLRA)].” Zucco Partners, LLC v. Digimarc Corp.,
552 F.3d 981, 990 (9th Cir. 2009). Rule 9(b) requires that a
party “state with particularity the circumstances constituting
fraud or mistake.” The PSLRA requires that “the complaint
shall specify each statement alleged to have been
misleading, the reason or reasons why the statement is
misleading, and, if an allegation regarding the statement or
omission is made on information and belief, the complaint
shall state with particularity all facts on which that belief is
formed.” 15 U.S.C. § 78u-4(b)(1)(B). “By requiring
specificity, [the PSLRA] prevents a plaintiff from skirting
dismissal by filing a complaint laden with vague allegations
      IN RE NEKTAR THERAPEUTICS SECURITIES LITIG.          11

of deception unaccompanied by a particularized explanation
stating why the defendant’s alleged statements or omissions
are deceitful.” Metzler Inv. GMBH v. Corinthian Colls.,
Inc., 540 F.3d 1049, 1061 (9th Cir. 2008).

                        ANALYSIS

    To plead a claim under § 10(b) and Rule 10b-5, a
plaintiff must allege “(1) a material misrepresentation or
omission [falsity]; (2) scienter; (3) a connection between the
misrepresentation or omission and the purchase or sale of a
security; (4) reliance; (5) economic loss; and (6) loss
causation.” Nguyen, 962 F.3d at 413 (quoting Or. Pub.
Emps. Ret. Fund v. Apollo Grp. Inc., 774 F.3d 598, 603 (9th
Cir. 2014)). Each of these elements must be independently
satisfied. See Or. Pub. Emps. Ret. Fund, 774 F.3d at 607
(explaining that failure to adequately plead an element “is an
independent basis” on which to affirm dismissal of the
complaint).

    As explained below, we hold that Plaintiffs have failed
to establish falsity and loss causation under the applicable
pleading standards. For that reason, we need not address the
remaining elements.

I. The Complaint Does Not Adequately Allege Why
   Nektar’s Statements About Phase 1 EXCEL Trial
   Results Are False or Misleading.

    To satisfy the falsity element, the Pensions point to
Nektar’s use of the 30-fold chart to tout the effectiveness of
NKTR-214. The Pensions’ arguments lack merit because
they fail to specify why the chart would have deceived a
reasonable investor under § 10(b) or Rule 10b-5.
12    IN RE NEKTAR THERAPEUTICS SECURITIES LITIG.

     A. The complaint fails to explain why the alleged
        outlier data in the Phase 1 EXCEL clinical trial
        constituted a material misrepresentation.

    The parties dispute whether Patient 14’s outlier data was
in fact included in the 30-fold chart’s calculations. But even
assuming it was, the complaint fails to explain why its
inclusion was materially misleading. Simply put, the
complaint does not allege with specificity what the Phase 1
EXCEL results would have been without outlier data. Nor
does it provide context about why investors would have felt
misled had they received Phase 1 EXCEL results without the
outlier data.

     The Pensions say that the 30-fold chart was misleading
because Nektar failed to inform investors that it included
outlier data. An omission is materially misleading if “there
is ‘a substantial likelihood that [it] would have been viewed
by the reasonable investor as having significantly altered the
“total mix” of information made available’ for the purpose
of decisionmaking by stockholders concerning their
investments.” Retail Wholesale & Dep’t Store Union Loc.
338 Ret. Fund v. Hewlett-Packard Co., 845 F.3d 1268, 1274
(9th Cir. 2017) (quoting Basic Inc. v. Levinson, 485 U.S.
224, 231–32 (1988)); accord Atossa, 868 F.3d at 795
(quoting same). So, “once defendants [choose] to tout
positive information to the market, they [are] bound to do so
in a manner that wouldn’t mislead investors, including
disclosing adverse information that cuts against the positive
information.” Khoja v. Orexigen Therapeutics, Inc., 899
F.3d 988, 1009 (9th Cir. 2018) (quoting Schueneman v.
Arena Pharm., Inc., 840 F.3d 698, 705–06 (9th Cir. 2016)).

    Here, the Pensions have not pleaded specific facts
articulating why Nektar’s 30-fold chart about the Phase 1
EXEL clinical results was materially misleading. See
        IN RE NEKTAR THERAPEUTICS SECURITIES LITIG.                    13

Metzler, 540 F.3d at 1061. The complaint merely alleges
that outlier data drove the 30-fold change claim without
providing any meaningful context or information about why
an investor’s assessment of Nektar would have changed if
Patient 14’s alleged outlier data had been excluded. 4 Put
another way, we simply do not know what the results would
have been without the outlier data or what those results
would mean as a medical matter.

     The Pensions take three stabs at what the fold change
would have been without Patient 14’s outlier data, but they
all fall short of the heightened pleading standard imposed by
Rule 9(b) and the PSLRA.

    First, the Pensions rely on the Plainview Report to allege
that the result “would look very different” if one calculated
the fold change based on only three patients found in Figure
6 who were dosed every three weeks. The complaint claims
that the fold change for that calculation would be “~1.8
fold.” But cherry-picking data from only three patients does
not plausibly show the falsity of the 30-fold claim. Indeed,
the complaint never explains or justifies why it excluded the
other remaining patients (at least six more in the 30-fold
chart). And it is not even apparent from the complaint
whether any patients from Figure 6 are in the 30-fold chart,
as the latter included data from only ten out of the twenty-
eight patients in the EXCEL trial.

    Second, the complaint states that CW #2 contended that
the results would have been “nowhere near” the 30-fold
    4
       In their briefs, the Pensions maintained that Patient 14’s outlier
(positive) data should have been excluded because it skewed the results.
But if so, it would also allow companies to discard outlier (negative) data
claiming that it distorts the results. The Pensions presumably would
consider such exclusion of negative data to be misleading.
14       IN RE NEKTAR THERAPEUTICS SECURITIES LITIG.

result without Patient 14’s data, but it does not specify any
further details. Instead, CW #2 relies on vague and
hyperbolic assertions, describing the 30-fold chart as
“misleading,” “deceitful,” and “lacking scientific integrity.”
But conclusory adjectives do not meet the PSLRA’s
heightened pleading requirements. Metzler, 540 F.3d at
1061. In the highly technical task of evaluating scientific
studies and their impact on investment decisions, plaintiffs
must provide some specificity to anchor their contentions
that investors would find one study outcome to be
meaningfully different from another.          The Pensions’
complaint fails to do that.

    Third, the Pensions rely on a statistical analysis by an
expert who estimates, after making many assumptions, that
the fold change experienced by the other patients in the 30-
fold chart could not have topped 5.55. Yet again, we are
provided no plausible justification for the assumptions
underlying how this expert precisely derived that 5.55-fold
estimate. 5 Plaintiffs cannot evade the PSLRA’s exacting
pleading standards by merely citing an expert who makes
assertions about falsity based on questionable assumptions
and unexplained reasoning.

     5
       The expert apparently assumes that Patient 14’s starting CD8+
count was 10 cells/mm2. But this is seemingly estimated from visually
looking at Figure 6, which is a tiny graphic whose y-axis is marked by
large increments of 500 (0, 500, 1000, etc.). The dot representing Patient
14’s starting CD8+ count is near zero, but the dot itself is big enough
visually relative to the compressed y-axis that one could reasonably
conclude that Patient 14’s actual starting count is anywhere from zero to
50. Using the same logic as the expert, choosing a starting count
somewhere between 11 and 50 would mean that the fold change
experienced by the other patients in the 30-fold chart could be anywhere
from ~8-fold to ~27-fold.
      IN RE NEKTAR THERAPEUTICS SECURITIES LITIG.           15

     Even assuming the Pensions had adequately alleged
what the fold change would have been without Patient 14’s
data, they have failed to explain why that difference would
be material to a reasonable investor. See Retail Wholesale,
845 F.3d at 1274; Atossa, 868 F.3d at 795. Consider this
analogy on why context matters in determining the falsity of
statements based on highly technical information: Suppose a
smartphone maker touts that the microchip in its newest
phone is 300 times faster than its predecessor chip based on
multiple technical tests. But if we take out one outlier test,
it turns out that the new microchip is 200 times faster. It may
well be that consumers cannot tell the difference between
200 times and 300 times faster in real-life because 200 times
is blazingly fast for any conceivable task on a smartphone.
And in such a scenario, the average investor may not care
whether the new microchip is 200 times or 300 times faster
because it makes no material difference to consumers.

    Likewise, we do not know from the complaint whether a
somewhat lower fold-change would have been material to
investors. For example, without Patient 14’s data, perhaps
the number of cancer-fighting cells would have increased
15-fold. Is that an excellent result from a medical
perspective? Is there any material difference between a 15-
fold increase and a 30-fold increase? And how would an
average investor assess such a difference? Perhaps investors
would not care about such a difference if it turned out that a
30-fold increase provides little marginal benefit over a 15-
fold increase for most cancer patients. We cannot answer
any of these questions because the complaint has failed to
plead sufficient facts to provide context that would allow us
to assess the alleged falsity of Nektar’s statements.
16     IN RE NEKTAR THERAPEUTICS SECURITIES LITIG.

     B. The purported inclusion of patients with different
        dosing schedules does not render the 30-fold chart
        materially misleading.

    The Pensions also allege that Nektar “falsely claimed
that the patients in the trial were dosed with NKTR-214
every three weeks when, in fact, two of the patients used to
support the 30-fold increase claim—including the outlier
patient—were dosed every two weeks.” But the Pensions
plead no facts suggesting why the one-week difference in
dosing “would have been viewed by the reasonable investor
as having significantly altered the ‘total mix’ of information
made available.” Atossa, 868 F.3d at 795 (quoting Basic,
485 U.S. at 231–32). It might be inferred that needing a
higher frequency of dosing suggests a lower potency of the
drug, but it is unclear how that relates to the viability of
NKTR-214 on the market or, as a result, Nektar’s
attractiveness as an investment. The Pensions thus have not
plausibly alleged a materially false statement about dosing
frequency.

II. The Complaint Does Not Plausibly Establish Loss
    Causation.

    The Pensions have also failed to allege loss causation.
When considering loss causation, “the ultimate issue is
whether the defendant’s misstatement, as opposed to some
other fact, foreseeably caused the plaintiff’s loss.” Lloyd,
811 F.3d at 1210. The “burden of pleading loss causation is
typically satisfied by allegations that the defendant revealed
the truth through ‘corrective disclosures’ which ‘caused the
company’s stock price to drop and investors to lose money.’”
Id. at 1209 (quoting Halliburton Co. v. Erica P. John Fund,
Inc., 573 U.S. 258, 264 (2014)). Plaintiffs thus must show a
“causal connection between the fraud and the loss by tracing
the loss back to the very facts about which the defendant
       IN RE NEKTAR THERAPEUTICS SECURITIES LITIG.                       17

lied.” Mineworkers’ Pension Scheme v. First Solar Inc., 881
F.3d 750, 753 (9th Cir. 2018) (internal quotation marks and
citations omitted). 6

    A. The later Phase 1/2 PIVOT trial result was not a
       corrective disclosure that exposed the alleged
       falsity of the earlier Phase 1 EXCEL trial data.

    As discussed above, after earlier reporting on the highly
promising data from the Phase 1 EXCEL clinical trial,
Nektar later revealed results from the Phase 1/2 PIVOT trial
that somewhat took the shine off the initial trial data. Nektar
reported that the overall response rate in patients was 50%,
down from 85% reported in data collected in the year before.
The next business day on June 4, Nektar’s stock dropped
over 40%. The Pensions argue that the inclusion of
misleading outlier data in the Phase 1 EXCEL trial inflated
investor expectations, and then the results of the Phase 1/2
PIVOT trial revealed the falsity of the earlier Phase 1
EXCEL trial data.

   This claim fails because only a tenuous causal
connection exists between the alleged falsehoods from the
Phase 1 EXCEL trial and the Phase 1/2 PIVOT trial data
announcement that preceded the June 4 stock drop. The use

     6
       The Pensions also rely on a “zone of risk” theory to argue loss
causation. See, e.g., Lentell v. Merrill Lynch & Co., Inc., 396 F.3d 161,
173 (2d Cir. 2005). Our court has never expressly adopted that theory,
though other circuits have. See Nuveen Mun. High Income Opportunity
Fund v. City of Alameda, 730 F.3d 1111, 1120 (9th Cir. 2013). We have
continued to require securities fraud plaintiffs to allege that the defendant
lied about “the very facts” causing the plaintiffs’ losses, and it is unclear
in any event that courts employing the “zone of risk” theory require any
lesser showing. See id. (quoting McCabe v. Ernst & Young, LLP, 494
F.3d 418, 425, 431 (3d Cir. 2007)).
18    IN RE NEKTAR THERAPEUTICS SECURITIES LITIG.

of outlier data alleged in the complaint relates to the Phase 1
EXCEL trial, which focused only on NKTR-214. In
contrast, the Phase 1/2 PIVOT trial tested patients who
received both NKTR-214 and Opdivo, another anti-cancer
drug. The Phase 1/2 PIVOT trial thus tested a different
treatment and used a different diagnostic measure than the
Phase 1 EXCEL trial (tumor shrinkage rather than biomarker
data).

    Of course, the two trials are related in that they both
involved NKTR-214. But the inquiry is whether the
Pensions have traced their losses “back to the very facts
about which the defendant lied.” Mineworkers, 881 F.3d at
753 (quotation omitted). The Pensions’ allegations focus on
data from the earlier Phase 1 EXCEL trial, rather than the
later Phase 1/2 PIVOT data. The announcement of the Phase
1/2 results did not suggest that the EXCEL data were
improperly manipulated, or that the methodology for
collecting and analyzing that data was flawed. Indeed,
Nektar’s announcement merely integrated newly collected
data from the Phase 1/2 PIVOT trial into its reporting. It did
not correct or revise previous patient data.

    The Phase 1/2 PIVOT result was not a corrective
disclosure that exposed the alleged falsity in the Phase 1
EXCEL trial data, causing the drop in stock price. Rather, it
merely showed that results from a different and more
comprehensive test were not as promising as those from the
more limited Phase 1 EXCEL data. Thus, the Pensions’
factual allegations most plausibly suggest that relatively
disappointing test results, not any revelation of earlier
falsehoods, caused Nektar’s share price to plunge.
      IN RE NEKTAR THERAPEUTICS SECURITIES LITIG.            19

   B. The Plainview Report Does Not Establish Loss
      Causation.

    The Pensions also argue that the Plainview Report—in
which anonymous short-sellers claimed that Patient 14’s
outlier data from Figure 6 were incorporated into the 30-fold
chart—served as a corrective disclosure that caused Nektar’s
stock to drop by seven percent on October 1. That argument
fails.

    Our court recently analyzed when a short-seller’s report
can satisfy the loss causation element in Houston Mun.
Employees Pension System v. BofI Holding, Inc. (In re BofI
Holding, Inc. Securities Litigation), 977 F.3d 781 (9th Cir.
2020). The inquiry begins with whether the court can
“plausibly infer that the alleged corrective disclosure
provided new information to the market that was not yet
reflected in the company’s stock price.” Id. at 795. This is
normally difficult with a short-seller report that uses publicly
available information because a corrective disclosure “must
by definition reveal new information to the market that has
not yet been incorporated into the [stock] price.” Id. at 794.
But if the report “required extensive and tedious research
involving the analysis of far-flung bits and pieces of data,”
then “[t]he time and effort it took to compile this information
make it plausible that the posts provided new information to
the market, even though all of the underlying data was
publicly available.” Id. at 797.

    BofI underscored the high bar that plaintiffs must meet
in relying on self-interested and anonymous short-sellers.
We acknowledged that it was “plausible” that the short-seller
blog posts at issue “provided new information to the
market,” but “nonetheless conclude[d]” that the plaintiffs
“ha[d] not plausibly alleged that these posts constituted
corrective disclosures.” Id. We explained that “it is not
20    IN RE NEKTAR THERAPEUTICS SECURITIES LITIG.

plausible that the market reasonably perceived these posts as
revealing the falsity of [the defendant’s] prior
misstatements” because:

       The posts were authored by anonymous
       short-sellers who had a financial incentive to
       convince others to sell, and the posts included
       disclaimers from the authors stating that they
       made “no representation as to the accuracy or
       completeness of the information set forth in
       this article.” A reasonable investor reading
       these posts would likely have taken their
       contents with a healthy grain of salt.

Id.

    We hold that the same reasoning applies to the Plainview
Report. Perhaps the Plainview Report did provide new
information to the market. Its analysis pulled together
disparate sources and connected data in ways that were not
plainly obvious. For example, it compared statements made
by Nektar at different conferences and it cross-checked
sources provided by Nektar. Yet the Plainview Report was
“authored by anonymous short-sellers who had a financial
incentive to convince others to sell, and the posts included
disclaimers from the authors stating that they made ‘no
representation as to the accuracy or completeness of the
information set forth in this article.’” BofI, 977 F.3d at 797.
As a result, it is not plausible that the market would perceive
the Plainview Report as revealing false statements because
the nature of the report means that investors would have
taken its “contents with a healthy grain of salt.” Id.

    The Pensions attempt to distinguish BofI by arguing that
the reports in that case had only a tangential relationship to
the false statements at issue, while here the Plainview Report
      IN RE NEKTAR THERAPEUTICS SECURITIES LITIG.             21

relates directly to the alleged false statements. It is true that
information’s “relationship to the alleged misstatements”
was a factor considered in BofI. Id. at 795. But the central
holding in the case was that the character of the report—
anonymous and self-interested short-sellers who disavowed
any accuracy—rendered it inadequate. Whether a report is
tangential or direct in relation to the misstatements does not
change that fact.

   In sum, the Plainview Report does not establish loss
causation for the October 1 stock drop.

                       CONCLUSION

    Pharmaceutical companies often suffer setbacks in their
clinical trials after earlier testing offered highly promising
results. That is the nature of the industry, and—without
more—it does not necessarily mean that a pharmaceutical
company committed securities fraud. The Pensions’
operative complaint does not provide anything “more” here
under the applicable legal standards, and so the Pensions
have failed to state a claim for securities fraud. As a result,
we AFFIRM the district court’s dismissal of the Second
Amended Complaint.