                      FOR PUBLICATION

    UNITED STATES COURT OF APPEALS
         FOR THE NINTH CIRCUIT


 KARIM KHOJA, on behalf of himself                   No. 16-56069
 and all others similarly situated,
                   Plaintiff-Appellant,                 DC No.
                                                    3:15-cv-00540-
                      v.                                 JLS

 OREXIGEN THERAPEUTICS, INC.;
 JOSEPH P. HAGAN; MICHAEL A.                           OPINION
 NARACHI; PRESTON KLASSEN,
              Defendants-Appellees.


         Appeal from the United States District Court
            for the Southern District of California
        Janis L. Sammartino, District Judge, Presiding

           Argued and Submitted November 6, 2017
                    Pasadena, California

                      Filed August 13, 2018

    Before: A. Wallace Tashima, and Marsha S. Berzon,
    Circuit Judges, and Robert E. Payne,* District Judge

                    Opinion by Judge Tashima


    *
      The Honorable Robert E. Payne, United States District Judge for the
Eastern District of Virginia, sitting by designation.
2             KHOJA V. OREXIGEN THERAPEUTICS

                            SUMMARY**


                          Securities Fraud

    The panel affirmed in part and reversed in part the district
court’s dismissal, for failure to state a claim, of a securities
fraud action under the Securities Exchange Act of 1934.

    Defendant Orexigen Therapeutics, Inc., a small
biotechnology firm, developed Contrave, an obesity drug
candidate. Count I alleged that Orexigen and its executives
misrepresented and/or omitted material facts to conceal the
truth and/or adverse material information about a drug trial
called the Light Study, in violation of § 10(b) of the Act and
SEC Rule 10b-5. Count II alleged a fraudulent scheme under
SEC Rules 10b-5(a) and (c), and Count III alleged control
person liability on the part of the executives under § 20(a) of
the Act.

    The district court relied, in part, on documents that it
judicially noticed or incorporated into the complaint by
reference. The panel held that under Federal Rule of
Evidence 201, a court may take judicial notice of matters of
public record without converting a motion to dismiss into a
motion for summary judgment, but a court cannot take
judicial notice of disputed facts contained in such public
records. The panel concluded that the district court abused its
discretion in judicially noticing certain facts but properly took
judicial notice of the date of Orexigen’s international patent
application for Contrave. The panel reversed and remanded

    **
       This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
            KHOJA V. OREXIGEN THERAPEUTICS                    3

for clarification on Exhibit D, reversed the district court’s
judicial notice of Exhibit E, and affirmed the judicial notice
of Exhibit V.

    The panel held that incorporation-by-reference is a
judicially created doctrine that treats certain documents as
though they are part of the complaint itself. The doctrine
prevents plaintiffs from selecting only portions of documents
that support their claims, while omitting portions of those
very documents that weaken or doom their claims. The panel
held that a defendant may seek to incorporate a document into
the complaint if the plaintiff refers extensively to the
document or the document forms the basis of the plaintiff’s
claim. But if a document merely creates a defense to the
well-pled allegations in the complaint, then that document did
not necessarily form the basis of the complaint. And it is
improper to assume the truth of an incorporated document if
such assumptions only serve to dispute facts stated in a well-
pleaded complaint. The panel held that the district court
abused its discretion by incorporating certain documents into
the complaint and properly incorporated others. Specifically,
the panel reversed the district court’s incorporation-by-
reference of Exhibits B, C, F, H, R, S, and U, and it affirmed
the incorporation of Exhibits A, I K, L, N, O, P, and T.

    The panel affirmed in part and reversed in part the district
court’s dismissal of Count I for failure sufficiently to allege
falsity and materiality, and it affirmed the district court’s
dismissal of Count II on the basis that the substance of the
claim could not be discerned. Where affirming, the panel
granted leave to amend the complaint. As to Count III, the
panel reversed so that the district court could reconsider those
claims in light of the reversal of claims in Count I and any
amendments to the complaint.
4           KHOJA V. OREXIGEN THERAPEUTICS

    The panel specified that its disposition of the appeal
pertained only to claims against the executive defendants.
With respect to Orexigen, appellate proceedings remained
stayed pending resolution of bankruptcy proceedings. The
panel instructed the Clerk to administratively close the docket
with respect to Orexigen, pending further order of the court.


                         COUNSEL

Ramzi Abadou (argued), Khan Swick & Foti, San Francisco,
California; Lewis Khan, Alexander Burns, and Scott St. John,
Khan Swick & Foti LLC, Madisonville, Louisiana; for
Plaintiff-Appellant.

Jessica Valenzuela Santamaria (argued) and John C. Dwyer,
Cooley LLP, Palo Alto, California; Mary Kathryn Kelley and
Dane R. Voris, Cooley LLP, San Diego, California; for
Defendants-Appellees.


                         OPINION

TASHIMA, Circuit Judge:

    This is an appeal from the dismissal by the district court
of an action under the Securities Exchange Act of 1934,
15 U.S.C. §§ 78a et seq. We must decide whether the district
court erred in dismissing the action. We conclude that it did,
in part. We also conclude that, in dismissing the action, the
district court abused its discretion by improperly considering
materials outside the Complaint. We also address and clarify
when and how the district court should consider materials
              KHOJA V. OREXIGEN THERAPEUTICS                           5

extraneous to the pleadings at the motion to dismiss stage via
judicial notice and the incorporation-by-reference doctrine.

                         BACKGROUND

I. Facts Alleged in Complaint

    Appellee Orexigen Therapeutics, Inc. (“Orexigen”) is a
small biotechnology firm that develops obesity drugs.1 At all
relevant times, Orexigen employed Michael Narachi (CEO
and Director), Joseph Hagan (Chief Business Officer,
Treasurer, and CFO), and Preston Klassen (Head of Global
Development) (collectively, the “Executive Defendants”).2

    A. Contrave and the “Light Study”

    Contrave is Orexigen’s primary drug candidate. It was
developed to treat obesity in patients. Obese patients are at
risk for major adverse cardiovascular events (“MACE”). To
develop Contrave, Orexigen partnered with Takeda
Pharmaceutical Co. Ltd. (“Takeda”).

   The Food and Drug Administration (“FDA”) required
Orexigen to conduct a trial of Contrave, called the “Light
Study.” Because obese persons are already at risk for MACE,


    1
       After oral argument in this appeal, Orexigen filed a voluntary
petition for bankruptcy under Chapter 11, in the United States Bankruptcy
Court for the District of Delaware, No. 18-10518-KG. Therefore,
pursuant to the automatic stay, 11 U.S.C. § 362(a), this opinion does not
address or decide Plaintiff’s appeal as against defendant-appellee
Orexigen.
    2
      Unless necessary to distinguish them, we refer to the Executive
Defendants and the company collectively as “Orexigen.”
6           KHOJA V. OREXIGEN THERAPEUTICS

the Light Study would assess if Contrave increased that risk.
Once 25 percent of a pre-determined amount of MACE
occurred, an “interim analysis” would assess if patients on
Contrave were more likely to suffer MACE than those on a
placebo (“25 percent interim results”). As required by the
FDA, an Executive Steering Committee (“ESC”), separate
from Orexigen, oversaw the Light Study. Dr. Steven Nissen,
from the Cleveland Clinic, headed the ESC. A Data
Monitoring Committee (“DMC”) was also created to monitor
the trial and report its results.

    FDA guidelines require that trial results remain
confidential. Orexigen entered into a data access plan
(“DAP”) with the ESC and the DMC. Orexigen agreed that
when it received the 25 percent interim results, only “those
individuals at [Orexigen] who needed to facilitate its
regulatory filings with the FDA” would have access to them.

    Orexigen initiated the Light Study in June 2012.

    B. Orexigen Leaks Positive 25 Percent Interim Results

    In November 2013, subject to the DAP, the DMC shared
the 25 percent interim results with Orexigen. The results
were unexpectedly positive. Rather than increase the risk of
MACE, “Contrave reduced cardiovascular events by
41 [percent] compared with a placebo.”

    The Light Study administrators requested that Orexigen
produce a list of individuals who knew of the 25 percent
interim results. Orexigen revealed that over 100 people with
a financial interest in the Light Study knew of the 25 percent
interim results.
           KHOJA V. OREXIGEN THERAPEUTICS                 7

    As a sanction for Orexigen’s apparent leak, the FDA
required that four Orexigen executives, including Klassen,
sign an agreement forbidding Orexigen from disclosing the
25 percent interim results again. Another DAP further
limited which Orexigen employees had access to interim
results. Although the Light Study would continue, the FDA
also required that Orexigen perform an entirely new trial to
study Contrave’s cardiovascular effects.

    During a June 4, 2014, meeting about the leak, the FDA
reminded Narachi and Klassen that the leaked results –
representing only 25 percent of the pre-determined amount of
MACE required for the study – have “a high degree of
uncertainty and were likely to change with the accumulation
of additional data.”

   C. Orexigen Files Patent Application Containing
      Interim Results Confidentially, Then Requests
      Publication.

   Less than a month later, on July 2, 2014, Klassen
submitted a provisional patent application (“2014 Patent
Application”) for Contrave to the United States Patent and
Trademark Office (“USPTO”). The 2014 Patent Application
contained the 25 percent interim results. Orexigen filed the
2014 Patent Application pursuant to 35 U.S.C. § 122, which
renders patent applications confidential.

   In December 2014, the European Medicines Agency
(“EMA”) informed Orexigen that, in March 2015, the EMA
would review a draft decision to grant marketing
8           KHOJA V. OREXIGEN THERAPEUTICS

authorization for Contrave in Europe.3 Orexigen then
requested that the USPTO publish the 2014 Patent
Application, thus rescinding its earlier request to keep it
confidential. On February 11, 2015, the USPTO informed
Orexigen that it would publish the 2014 Patent Application –
which contained the confidential interim results – on March
3, 2015.

    D. Orexigen Reveals Interim Results Again.

     When the USPTO published the 2014 Patent Application,
Orexigen filed a Form 8-K (“March 2015 Form 8-K”) with
the Securities and Exchange Commission (“SEC”). That
filing described the 2014 Patent Application, including the
Light Study and the 25 percent interim results.

    Securities Analysts responded immediately and positively
to the revelations about Contrave. One called the 25 percent
interim results the “holy grail” for cardiometabolic disease
treatment.

    Orexigen’s stocks surged. The day before the 25 percent
interim results were revealed, Orexigen’s stock closed at
$5.79 per share. After the revelation, the stock peaked at
$9.37 per share, and closed at $7.64 per share on an unusually
high trading volume. Soon after, on March 13, 2015, and
pursuant to Orexigen’s Incentive Award Plan, Narachi and
Klassen registered six million Orexigen shares.

   It was not all good news, though. A March 3, 2015,
Forbes article reported that a senior FDA official stated that

   3
     In Europe, Contrave is marketed under a different name,
“Mysimba.”
             KHOJA V. OREXIGEN THERAPEUTICS                        9

the FDA was “very disappointed by Orexigen’s actions.”4
The FDA official further warned that the 25 percent interim
results should not be misinterpreted. On March 5, 2015,
another Forbes article quoted an FDA official “condemning
Orexigen’s SEC filing as ‘unreliable,’ ‘misleading,’ and
‘likely false.’” Two days later, shares of Orexigen’s common
stock slid almost six percent to close at $8.01 and, the
following day, slid 16 percent to as low as $6.76 in intraday
trading.

    Weeks later, on March 26, 2015, the ESC informed
Orexigen that, as the Light Study reached 50 percent
completion (“50 percent interim results”), the Light Study no
longer indicated a heart benefit from Contrave, contrary to
what the earlier 25 percent interim results suggested. Also,
because Orexigen again disclosed the 25 percent interim
results in the March 2015 Form 8-K, the ESC voted
unanimously to halt the Light Study.

    Dr. Nissen, the Chair of the ESC, worked with Takeda to
draft a press release disclosing the new Light Study data and
the termination of the Light Study. Takeda approved the
press release, but Orexigen did not.

    E. Orexigen Does Not Reveal New Developments in
       SEC Filings or During Investor Call.

     On May 8, 2015, Orexigen filed two forms with the SEC:
a press release on a Form 8-K (“May 2015 Form 8-K”), and
its Quarterly Report on Form 10-Q (“May 2015 Form 10-Q”).



    4
      Unless otherwise noted, we omit the Complaint’s emphasis of any
quoted material.
10          KHOJA V. OREXIGEN THERAPEUTICS

      The May 2015 Form 8-K described the Light Study,
stating, in part, “[t]he clinical trial program also includes a
. . . trial known as the Light Study.” The May 2015 Form 10-
Q stated that “additional analysis of the interim results or new
data from the continuing Light Study . . . may produce
negative or inconclusive results, or may be inconsistent with
the conclusion that the interim analysis was successful.”

    That same day, Orexigen hosted a conference call with
investors and analysts. An analyst asked “what is the fate of
the Light Study on this point. Has that been terminated?”
Klassen said that the “Light Study is continuing and we are
continuing to engage both Orexigen and Takeda with the
FDA and with ESC and DMC regarding ultimately the status
of the study, but it’s an ongoing entity as of right now.”

    Regarding the 50 percent interim results, an analyst asked
“I assume you’re not going to be releasing that; are you going
to be sending it to the FDA?” Klassen responded:

       [W]e’re in ongoing discussions related to that
       and I don’t think we’re going to go into the
       details, because again that’s a look that [the]
       DMC does. As a plan, they look at the 25%
       to 50% and 75%, but it’s really on the 25%
       analysis that was used for regulatory
       purposes. So if any of that status changes,
       then we would of course announce that.

Narachi said, in part:

       So, if the decision is made to terminate the
       trial early and focus resources on the next
       [trial], which is what we have been
            KHOJA V. OREXIGEN THERAPEUTICS                11

       advocating, then I think results would come
       out sooner . . . if you decide to stop the study
       now there will be additional events, so these
       details are being discussed and worked out
       and as we make formal decisions there, you’ll
       learn more about the availability of data from
       the study.

(Emphasis in Comp.)

    Again referencing the Light Study, an analyst asked “if
you could provide an estimate of the time or the strategy for
disclosure around the fate of the Light Study – is that
something that you need to disclose . . . ?” Narachi said:

       I think that that would be something we
       disclose. As [Klassen] said, there are active
       discussions between FDA, the [ESC] and
       DMC . . . [and] Takeda and Orexigen. And as
       soon as we understand specifically what the
       status is, so for example, if there was a
       decision to terminate the trial and move on
       and focus resources on the new [trial], that
       would be a disclosure that we would make.

(Emphasis in Comp.)

   F. Light Study’s 50 Percent Interim Results and Status
      Revealed

    Four days after that call, on May 12, 2015, Dr. Nissen
issued a statement. He said, in part, “Following premature
disclosure of interim study results, the 9,000-patient Light
[Study] . . . has been halted by the [ESC].” He further
12          KHOJA V. OREXIGEN THERAPEUTICS

revealed that the most recent results did not suggest a heart
benefit from Contrave.

    Orexigen learned that Dr. Nissen would issue such a
statement, and then issued its own. Orexigen’s statement
said, “Today some of the 50% interim analysis of the Light
Study was disclosed by a third party. Because most of our
management team remains blinded to the 50% data, we are
unable to comment.”

II. Procedural History

    Karim Khoja is an Orexigen investor who represents a
class of similarly situated Orexigen investors. On August 20,
2015, after numerous related actions were consolidated,
Khoja, acting on behalf of the putative investor class, filed the
operative Complaint alleging three securities violations.

     Counts I and II allege violations of §10(b) of the
Securities Exchange Act, 15 U.S.C. § 78j(b), and SEC Rule
10b-5, 17 C.F.R. § 240.10b-5, against Orexigen (including
the individually named Executive Defendants). Count I
alleges that Orexigen and the executives misrepresented
and/or omitted material facts “to conceal the truth and/or
adverse material information” about the Light Study. Count
II alleges a fraud scheme under SEC Rules 10b-5(a) and (c).

    Count III is against only the Executive Defendants.
Under § 20(a) of the Securities Exchange Act, 15 U.S.C.
§ 78t, Count III claims that, as “controlling” individuals,
those executives are liable for the violations in Counts I and
II.
            KHOJA V. OREXIGEN THERAPEUTICS                  13

    Orexigen moved to dismiss the Complaint for failure to
state a claim under §§ 10 and 20 of the Exchange Act.
Concurrently, Orexigen requested judicial notice of
22 documents or, alternatively, that the district court treat
those documents as incorporated into the Complaint itself.
The district court granted this motion for all but one
document.

    The district court then dismissed the Complaint for failure
to state a claim. It dismissed two claims under Count I with
prejudice. It granted Khoja leave to amend the others.

    Instead of amending the Complaint, Khoja requested
entry of judgment in order to pursue the instant appeal.
Judgment dismissing the action was entered on June 27,
2016. Khoja timely appealed.

                     JURISDICTION

    We have jurisdiction to review final judgments of district
courts. 28 U.S.C. § 1291. Khoja timely appealed the
judgment. Fed. R. App. P. 4(b)(4). Accordingly, we have
jurisdiction of this appeal.

                STANDARD OF REVIEW

    We review dismissal for failure to state a claim de novo.
Dougherty v. City of Covina, 654 F.3d 892, 897 (9th Cir.
2011). The decision to take judicial notice and/or incorporate
documents by reference is reviewed for an abuse of
discretion. United States v. 14.02 Acres of Land More or
Less in Fresno Cty., 547 F.3d 943, 955 (9th Cir. 2008)
(judicial notice); Davis v. HSBC Bank Nev., N.A., 691 F.3d
1152, 1160 (9th Cir. 2012) (incorporation by reference).
14          KHOJA V. OREXIGEN THERAPEUTICS

                        DISCUSSION

I. Judicial Notice and Incorporation-by-Reference
   Doctrine.

    In dismissing the Complaint, the district court relied, in
part, on 21 documents that it judicially noticed or
incorporated into the Complaint by reference. To assess
whether the district court erred in dismissing any claims,
then, we must first determine whether the district court
properly considered those documents at the motion to dismiss
stage.

    Generally, district courts may not consider material
outside the pleadings when assessing the sufficiency of a
complaint under Rule 12(b)(6) of the Federal Rules of Civil
Procedure. Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th
Cir. 2001). When “matters outside the pleading are presented
to and not excluded by the court,” the 12(b)(6) motion
converts into a motion for summary judgment under Rule 56.
Fed. R. Civ. P. 12(d). Then, both parties must have the
opportunity “to present all the material that is pertinent to the
motion.” Id.

    There are two exceptions to this rule: the incorporation-
by-reference doctrine, and judicial notice under Federal Rule
of Evidence 201. Both of these procedures permit district
courts to consider materials outside a complaint, but each
does so for different reasons and in different ways. We
address each seriatim.

    Before doing so, however, we note a concerning pattern
in securities cases like this one: exploiting these procedures
            KHOJA V. OREXIGEN THERAPEUTICS                   15

improperly to defeat what would otherwise constitute
adequately stated claims at the pleading stage.

    Properly used, this practice has support. The Supreme
Court stated in Tellabs, Inc. v. Makor Issues & Rights, Ltd.,
that, in assessing securities fraud claims, “courts must
consider the complaint in its entirety, as well as other sources
courts ordinarily examine when ruling on Rule 12(b)(6)
motions to dismiss, in particular, documents incorporated into
the complaint by reference, and matters of which a court may
take judicial notice.” 551 U.S. 308, 322 (2007).

    Thus, judicial notice and incorporation-by-reference do
have roles to play at the pleading stage. The overuse and
improper application of judicial notice and the incorporation-
by-reference doctrine, however, can lead to unintended and
harmful results. Defendants face an alluring temptation to
pile on numerous documents to their motions to dismiss to
undermine the complaint, and hopefully dismiss the case at an
early stage. Yet the unscrupulous use of extrinsic documents
to resolve competing theories against the complaint risks
premature dismissals of plausible claims that may turn out to
be valid after discovery. This risk is especially significant in
SEC fraud matters, where there is already a heightened
pleading standard, and the defendants possess materials to
which the plaintiffs do not yet have access. See In re Rigel
Pharm., Inc. Sec. Litig., 697 F.3d 869, 876 (9th Cir. 2012)
(observing that plaintiffs asserting “claims under section
10(b) and Rule 10b-5 must not only meet the requirements of
Rule 8, but must satisfy the heightened pleading requirements
of both Federal Rule of Civil Procedure 9(b) and the Private
Securities Litigation Reform Act”); see also Hsu v. Puma
Biotechnology, Inc., 213 F. Supp. 3d 1275, 1281–82 (C.D.
Cal. 2016) (describing “practical reality” of “inappropriate
16          KHOJA V. OREXIGEN THERAPEUTICS

efforts by defendants” in SEC matters to “expand courts’
consideration of extrinsic evidence at the motion to dismiss
stage,” which is “particularly troubling in the common
situation of asymmetry, where a defendant starts off with sole
possession of the information about the alleged
wrongdoing”). If defendants are permitted to present their
own version of the facts at the pleading stage – and district
courts accept those facts as uncontroverted and true – it
becomes near impossible for even the most aggrieved
plaintiff to demonstrate a sufficiently “plausible” claim for
relief. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007))
(articulating standard for “plausible” claim for relief at
pleading stage). Such undermining of the usual pleading
burdens is not the purpose of judicial notice or the
incorporation-by-reference doctrine.

    Accordingly, we aim here to clarify when it is proper to
take judicial notice of facts in documents, or to incorporate by
reference documents into a complaint, and when it is not.

     A. Judicial Notice

    Judicial notice under Rule 201 permits a court to notice an
adjudicative fact if it is “not subject to reasonable dispute.”
Fed. R. Evid. 201(b). A fact is “not subject to reasonable
dispute” if it is “generally known,” or “can be accurately and
readily determined from sources whose accuracy cannot
reasonably be questioned.” Fed. R. Evid. 201(b)(1)–(2).

    Accordingly, “[a] court may take judicial notice of
matters of public record without converting a motion to
dismiss into a motion for summary judgment.” Lee, 250 F.3d
at 689 (quotation marks and citation omitted). But a court
            KHOJA V. OREXIGEN THERAPEUTICS                    17

cannot take judicial notice of disputed facts contained in such
public records. Id.

    The district court judicially noticed three exhibits attached
to Orexigen’s Motion to Dismiss. We address each, in turn.

        1. September 11, 2014 Investors’ Conference Call
           Transcript.

    The district court judicially noticed a September 11, 2014,
investors’ conference call transcript (Ex. D) that was
submitted with one of Orexigen’s SEC filings.

   An investor call transcript submitted to the SEC generally
qualifies as a “source[] whose accuracy cannot reasonably be
questioned.” Fed. R. Evid. 201(b); see, e.g., In re Wash.
Mut., Inc. Sec., Derivative & ERISA Litig., 259 F.R.D. 490,
495 (W.D. Wash. 2009) (taking judicial notice of uncontested
conference call transcripts in securities fraud action); In re
Pixar Sec. Litig., 450 F. Supp. 2d 1096, 1100 (N.D. Cal.
2006) (same).

    But accuracy is only part of the inquiry under Rule
201(b). A court must also consider – and identify – which
fact or facts it is noticing from such a transcript. Just because
the document itself is susceptible to judicial notice does not
mean that every assertion of fact within that document is
judicially noticeable for its truth.

    Here, the district court did not clearly specify what fact or
facts it judicially noticed from this transcript. The district
court only indicated it would not “take notice of the truth of
the facts cited” within the exhibit.
18           KHOJA V. OREXIGEN THERAPEUTICS

    If the district court judicially noticed that there was an
investors’ conference call on September 11, 2014, that would,
in theory, be permissible under Rule 201(b) because that fact
“can be accurately and readily determined” from the
transcript.5

     Orexigen sought judicial notice of the transcript because
it “reveals what investors already knew[] about the decision
to conduct” another study besides the Light Study to assess
Contrave’s heart risks. Then, in its motion to dismiss the
Complaint, Orexigen relied on the transcript to demonstrate
that it “previously disclosed . . . that the FDA had determined
that the Light Study would not serve as the” definitive trial
for Contrave. Arguably, such a disclosure would be
significant to Khoja’s claim that Orexigen materially
misrepresented the status of the Light Study in May 2015. If
Orexigen already told investors that the Light Study would
not serve as the definitive trial, then Orexigen could argue
that it did not necessarily mislead investors when it failed to
inform them about the Light Study’s termination.

    Yet, from the transcript, it is unclear what exactly
Orexigen “previously disclosed” about the Light Study. At
one point, Klassen informed investors that, given recent “data
confidentiality issues[,] . . . continuing doing the Light Study
unchanged was not an option.” At another point, though,
Klassen said, “[i]n the meantime,” while a new study began,
“the Light Study is ongoing.”



     5
      It is unclear, however, how this fact would be relevant. See
21B Charles Alan Wright & Kenneth W. Graham, Jr., Federal Practice
and Procedure § 5104, at 156 (2d ed. 2005) (“An irrelevant fact could
hardly be an ‘adjudicative fact’. . . .”).
            KHOJA V. OREXIGEN THERAPEUTICS                    19

     Reasonable people could debate what exactly this
conference call disclosed about the Light Study. Klassen’s
statements are not entirely consistent; his former statement
suggests the Light Study was no longer underway, but his
latter statement suggests the opposite. It is improper to
judicially notice a transcript when the substance of the
transcript “is subject to varying interpretations, and there is a
reasonable dispute as to what the [transcript] establishes.”
Reina-Rodriguez v. United States, 655 F.3d 1182, 1193 (9th
Cir. 2011). In that scenario, there is no fact established by the
transcript “not subject to reasonable dispute,” and the fact
identified does not qualify for judicial notice under Rule
201(b).

    To the extent that the district court judicially noticed the
September 11, 2014, investors’ call transcript for the purpose
for which was offered, i.e., to determine what the investors
knew about the status of the Light Study at that time, the
district court abused its discretion.

        2. December 18, 2014, EMA Report About
           Contrave.

    The district court judicially noticed a December 18, 2014,
EMA report (“2014 EMA report”) (Ex. E) about Contrave.
Again, the district court did not expressly state what fact it
noticed from that report. The rest of the district court’s order,
however, sheds some light on the district court’s reasoning.

    Based on the 2014 EMA Report, the district court
concluded that the EMA already knew of the favorable,
25 percent interim results before Orexigen sought publication
of the 2014 Patent Application, which contained the
25 percent interim results. Therefore, contrary to Khoja’s
20           KHOJA V. OREXIGEN THERAPEUTICS

theory, Orexigen could not hope to influence the EMA by
improperly publishing the confidential, 25 percent interim
results through the 2014 Patent Application.

    It thus appears that the district court judicially noticed the
fact that the 2014 EMA Report shows that the EMA learned
of the 25 percent interim results from Orexiten by December
18, 2014. Judicially noticing that fact was improper.

    To be sure, as an agency report, the 2014 EMA Report is
generally susceptible to judicial notice. See United States v.
Ritchie, 342 F.3d 903, 907–09 (9th Cir. 2003) (observing
“[c]ourts may take judicial notice of some public records,
including the records and reports of administrative bodies”
(internal quotation marks and citation omitted)). But, again
ascertaining this factor is only part of the inquiry under Rule
201(b). Here, like the September 2014 transcript, there is a
reasonable dispute as to what the report establishes.

     First, we look to what the 2014 EMA Report states.
Regarding Contrave, the 2014 EMA Report states, “The
Applicant has submitted the first interim report of the [Light
Study].” and then summarizes te Light Study’s interim
results. These statements indicate that, somehow, the EMA
knew of the 25 percent interim results when the EMA
published the instant report on December 18, 2014. Thus, the
district court could have correctly noticed the fact that, based
on the 2014 EMA Report, the EMA knew about the
25 percent interim results before Orexigen sought to publish
its 2014 Patent Application.

   Even so, the 2014 EMA report alone, does not establish
who told the EMA about the 25 percent interim results. This
gap is important. If Orexigen already provided the 25 percent
            KHOJA V. OREXIGEN THERAPEUTICS                    21

interim results directly to the EMA, then, as the district court
found, it would make little sense for Orexigen to go through
the ruse of publishing the 2014 Patent Application. However,
the report lists the “Applicant” only as “Orexigen
Therapeutics Ireland Limited” (“Orexigen Ireland”). If
Orexigen Ireland revealed the 25 percent interim results to the
EMA without consulting the Orexigen defendants in this
case, then Orexigen Ireland unwittingly foiled Orexigen’s
alleged scheme to reveal those results by publishing the 2014
Patent Application. Then, Orexigen’s alleged scheme –
although botched – could remain theoretically actionable
under Rule 10b-5.

    Of course, Orexigen Ireland may have obtained the
25 percent interim results from Orexigen, or Orexigen could
have explicitly advised Orexigen Ireland to submit those
results to the EMA, or Orexigen Ireland’s actions could be
imputed to Orexigen. The report does not particularly point
to any of these inferences. Therefore, the district court could
not reasonably conclude on a motion to dismiss what the
2014 EMA Report revealed about Orexigen’s alleged scheme
to publish the 2014 Patent Application. The district court
abused its discretion in judicially noticing that fact on the
basis of the 2014 EMA Report.

        3. International Patent Application.

     The district court judicially noticed Orexigen’s
international patent application for Contrave to the World
International Property Organization (“WIPO application”)
(Ex. V). Again, the district court did not explicitly state what
it judicially noticed about the WIPO application. Based on
the district court’s order, however, it appears that the district
court noticed only the filing date of the WIPO application.
22          KHOJA V. OREXIGEN THERAPEUTICS

    To start, the date “can be accurately and readily
determined from” the WIPO application, which was
published by a foreign government agency. Fed. R. Evid.
201(b)(2). Neither party disputes the WIPO application’s
authenticity, or its accuracy. Id. The WIPO application is,
thus, “verifiable with certainty, and of the same type as other
governmental documents which courts have judicially
noticed.” United States v. Camp, 723 F.2d 741, 744 n.** (9th
Cir. 1984); see also GeoVector Corp. v. Samsung Elecs. Co.,
234 F. Supp. 3d 1009, 1016 n.2 (N.D. Cal. 2017) (taking
judicial notice of Korean patent application).

    The district court did not abuse its discretion by judicially
noticing when Orexigen filed the WIPO Application.

     B. Incorporation-by-Reference.

    Unlike rule-established judicial notice, incorporation-by-
reference is a judicially created doctrine that treats certain
documents as though they are part of the complaint itself.
The doctrine prevents plaintiffs from selecting only portions
of documents that support their claims, while omitting
portions of those very documents that weaken – or doom –
their claims. Parrino v. FHP, Inc., 146 F.3d 699, 706 (9th
Cir. 1998), superseded by statute on other grounds as
recognized in Abrego Abrego v. Dow Chem. Co., 443 F.3d
676, 681–82 (9th Cir. 2006) (observing “the policy concern
underlying the rule: Preventing plaintiffs from surviving a
Rule 12(b)(6) motion by deliberately omitting references to
documents upon which their claims are based”).

    Although the doctrine is straightforward in its purpose, it
is not always easy to apply. In Ritchie, we said that a
defendant may seek to incorporate a document into the
            KHOJA V. OREXIGEN THERAPEUTICS                 23

complaint “if the plaintiff refers extensively to the document
or the document forms the basis of the plaintiff’s claim.”
Ritchie, 342 F.3d at 907. How “extensively” must the
complaint refer to the document? This court has held that
“the mere mention of the existence of a document is
insufficient to incorporate the contents of a document” under
Ritchie. Coto Settlement v. Eisenberg, 593 F.3d 1031, 1038
(9th Cir. 2010) (citing Ritchie, 342 F.3d at 908–09). A more
difficult question is whether a document can ever “form[] the
basis of the plaintiff’s claim” if the complaint does not
mention the document at all.

    To be sure, there are those rare instances when assessing
the sufficiency of a claim requires that the document at issue
be reviewed, even at the pleading stage. For example, in
Knievel v. ESPN, 393 F.3d 1068 (9th Cir. 2005), we affirmed
the incorporation of materials that the complaint did not
reference at all. Evel Knievel alleged that ESPN defamed
him and his wife on its website by posting a picture of them
and another woman with an arguably suggestive caption. Id.
at 1070. In the complaint, Knievel only referenced the
allegedly defamatory photo and caption. Id. at 1076. ESPN
then submitted the surrounding photos and captions to show
a reasonable person would not view the caption at issue as
defamatory. Id. A defamation claim requires showing that
the statement at issue, given its context, “is capable of
sustaining a defamatory meaning.” Id. at 1073 (internal
quotation maks omitted). Therefore, even though the
complaint did not “allege or describe the contents of the
surrounding pages,” it was proper to incorporate them
because the claim necessarily depended on them. Id. at 1076;
see also Parrino, 146 F.3d at 706 (incorporating employee
health plan where the claims were premised upon plaintiff’s
coverage under the plan).
24          KHOJA V. OREXIGEN THERAPEUTICS

    However, if the document merely creates a defense to the
well-pled allegations in the complaint, then that document did
not necessarily form the basis of the complaint. Otherwise,
defendants could use the doctrine to insert their own version
of events into the complaint to defeat otherwise cognizable
claims. See In re Immune Response Sec. Litig., 375 F. Supp.
2d 983, 995–96 (S.D. Cal. 2005) (declining to incorporate
numerous exhibits in SEC action where the complaint did not
mention or rely on them, but the defendants instead “offer[ed]
the documents as evidence that Defendants did not commit a
securities violation”); Glob. Network Commc’ns, Inc. v. City
of New York, 458 F.3d 150, 156–57 (2d Cir. 2006) (finding
error where the court relied on documents the complaint did
not mention to resolve an issue in defendant’s favor, even
though the complaint had not raised the issue). Submitting
documents not mentioned in the complaint to create a defense
is nothing more than another way of disputing the factual
allegations in the complaint, but with a perverse added
benefit: unless the district court converts the defendant’s
motion to dismiss into a motion for summary judgment, the
plaintiff receives no opportunity to respond to the defendant’s
new version of the facts. Without that opportunity to
respond, the defendant’s newly-expanded version of the
complaint – accepted as true at the pleading stage – can easily
topple otherwise cognizable          claims.     Although the
incorporation-by-reference doctrine is designed to prevent
artful pleading by plaintiffs, the doctrine is not a tool for
defendants to short-circuit the resolution of a well-pleaded
claim.

   For this same reason, what inferences a court may draw
from an incorporated document should also be approached
with caution. We have stated that, unlike judicial notice, a
court “may assume [an incorporated document’s] contents are
            KHOJA V. OREXIGEN THERAPEUTICS                 25

true for purposes of a motion to dismiss under Rule 12(b)(6).”
Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006) (quoting
Ritchie, 342 F.3d at 908). While this is generally true, it is
improper to assume the truth of an incorporated document if
such assumptions only serve to dispute facts stated in a well-
pleaded complaint. This admonition is, of course, consistent
with the prohibition against resolving factual disputes at the
pleading stage. See In re Tracht Gut, LLC, 836 F.3d 1146,
1150 (9th Cir. 2016) (“At the motion to dismiss phase, the
trial court must accept as true all facts alleged in the
complaint and draw all reasonable inferences in favor of the
plaintiff.”); see also Sgro v. Danone Waters of N. Am., Inc.,
532 F.3d 940, 942, n.1 (9th Cir. 2008) (finding it proper to
consider disability benefits plan referenced in complaint, but
declining to accept truth of the plan’s contents where the
parties disputed whether defendant actually implemented the
plan according to its terms).

    With these principles in mind, we turn to the documents
at issue here. The district court incorporated eighteen
documents, fifteen of which Khoja objects to on appeal.

       1. Analyst Reports and Blog Entries.

           a. March 6, 2015, Wall Street Journal blog post.

    The district court incorporated a March 6, 2015, Wall
Street Journal blog post titled “Orexigen Data is ‘Unreliable
and Premature’: FDA’s Jenkins Explains.” (Ex. C) The
Complaint quotes this post once in a two-sentence footnote
explaining the meaning and significance of a DAP. This
footnote is the only reference to the blog post in the
Complaint. For “extensively” to mean anything under
Ritchie, it should, ordinarily at least, mean more than once.
26          KHOJA V. OREXIGEN THERAPEUTICS

See Coto, 593 F.3d at 1038. Otherwise, the rule would
simply require a complaint to “refer” to the document. In
theory, a reference may be sufficiently “extensive” if a single
reference is relatively lengthy. Here, the quotation comprises
only a few lines in a footnote of a 67-page complaint. It
conveys only basic historic facts about the DAP. It is not
sufficiently extensive under Ritchie.

    Nor did the blog post form the basis of any claim in the
Complaint. Although the blog post shares a discussion with
Dr. Jenkins about the unreliability of the earlier 25 percent
interim results, the claims do not rely on what exactly Dr.
Jenkins said to this particular blogger. Rather, the claims
concern whether Orexigen misled investors about the
reliability of the interim results and the status of the Light
Study. Cf. Branch v Tunnell, 14 F.3d 449, 453–54 (9th Cir.
1994), overruled on other grounds by Galbraith v. County of
Santa Clara, 307 F.3d 1119 (9th Cir. 2002) (incorporating
transcript of testimony plaintiff relied on to allege defendant
submitted a false affidavit where the transcript actually
proved defendant did not do so). Accordingly, the March 6,
2015, Wall Street Journal blog post (Ex. C) did not satisfy
Ritchie. The district court abused its discretion by
incorporating it.

           b. March 4, 2015, Blog Post, “Fat Chance:
              FDA Chastises Orexigen.”

   The district court incorporated another blog post: a
March 4, 2015 Wall Street Journal post titled “Fat Chance:
FDA Chastises Orexigen for Disclosing Interim Trial Data.”
(Ex. I)
            KHOJA V. OREXIGEN THERAPEUTICS                 27

     The Complaint only identifies and quotes this blog post
once. The quotation – nearly a page and a half – is lengthy
and conveys numerous facts: FDA officials were upset about
the release of interim results; the FDA “considers the
preliminary data ‘far too unreliable to conclude anything
further about cardiovascular safety’”; the Light Study may be
at risk because of the disclosures; and Orexigen violated the
Light Study’s confidentiality once before.

    Although the claims do not turn on the blog post itself,
Khoja did more than merely mention it. See Coto, 593 F.3d
at 1038. Per Ritchie, it was not an abuse of discretion to
incorporate it.

           c. March 3, 2015, Market Reports.

     The Complaint quoted two reports (Ex. K & L) to
demonstrate how analysts positively reacted to the interim
results upon release of the allegedly misleading March 2015
Form 8-K: (1) a March 3, 2015, RBC Capital Markets report
titled “Orexigen Therapeutics Inc. LIGHT interim data reveal
Contrave positive CV effect; extend IP by 7 years”; and (2) a
March 3, 2015, Leerink Partner report titled “OREXIGEN
THERAPEUTICS, INC 25% Interim LIGHT Analysis Shows
Stat. Sig. Contrave Benefit on CV Outcomes.”

    The quotes are not as extensive as the quotations of the
March 4, 2015, blog post, discussed above. Nonetheless, the
reports form the basis of Khoja’s claim that the market relied
on Orexigen’s claims about the 25 percent interim results
after “numerous securities analysts” followed and wrote
reports about Orexigen. The district court did not abuse its
discretion by incorporating these reports. See, e.g., Patel v.
Parnes, 253 F.R.D. 531, 546–50 (C.D. Cal. 2008)
28           KHOJA V. OREXIGEN THERAPEUTICS

(incorporating analyst reports to show when the alleged
misrepresentations were provided to the market and their
materiality).

            d. March 3, 2015, Forbes Web Article – “The
               FDA Is Forcing Orexigen to Do a Second
               Safety Study Because of Contrave
               Disclosures.”

    The Complaint quotes the article (Ex. N) to show that the
FDA “warned patients and physicians that it was ‘critical that
the[] interim data [] not be misinterpreted.’” (Alterations in
original.) Then, “immediately after” this article, Orexigen
submitted its own statement “to maintain the artificial price
inflation in [Orexigen’s] securities.” Khoja thus claims that
Orexigen’s response to the article was truly part of its scheme
to inflate its stock values. Because the article triggered the
alleged scheme, the article formed the basis of the scheme.
Accordingly, the district court did not abuse its discretion by
incorporating the article.

            e. March 5, 2015 Forbes web article titled “Top
               FDA Official Says Orexigen Study Result
               ‘Unreliable,’ ‘Misleading.’”

     The Complaint describes and quotes this article (Ex.O):

        After the close of trading on March 5, 2015,
        in a report entitled “Top FDA Official Says
        Orexigen Study Result ‘Unreliable,’
        ‘Misleading’” published on Forbes.com, top
        FDA official Dr. John Jenkins criticized
        Orexigen and its decision to release interim
        trial data. In the report, he criticized the
            KHOJA V. OREXIGEN THERAPEUTICS                    29

        released data as “unreliable,” “misleading,”
        and “likely false.” Dr. Jenkins also said that
        the results must be kept confidential to avoid
        compromising the trial’s integrity so
        researchers can get a clear sense of any
        cardiovascular risk that comes with the drug.
        The report also warned that if “Orexigen
        cannot find a way to set things right, it could
        face fines, civil penalties, or even the
        withdrawal of Contrave from the market.

The Complaint then alleges that, “[a]s a result of the FDA’s”
statements in the article, “the price of Orexigen stock
plummeted.”

    These are more than passing reference to the article. See
Ritchie, 342 F.3d at 908. The Complaint alleges the loss in
Orexigen’s stock price occurred because of this article’s
revelations. Put differently, the article revealed the
materiality of Orexigen’s alleged misrepresentations and
omissions about the 25 percent interim results. Because such
materiality forms the basis of Count I, the district court did
not abuse its discretion by incorporating this article.

            f. April 6, 2015 Leerink Partner report –
               “OREXIGEN THERAPEUTICS, INC Meeting
               with Mgmt Highlights Partnering Goals, Next
               Steps for CV Studies.”

    The Complaint does not name this report (Ex. P), but
appears to quote from it. Per the Complaint, the article
“relayed a highly positive report about the 25% interim
results based [on] [Orexigen’s] representations that ‘. . .
Contrave is, at worst, CV safe or, at best, cardioprotective[.]’”
30          KHOJA V. OREXIGEN THERAPEUTICS

    This single brief quotation is likely not extensive enough
under Ritchie. Nonetheless, the Complaint uses the article to
allege that Narachi and Hagan said that Contrave was “at
best, cardioprotective” even though they allegedly knew by
then that the data revealed no benefit. Count I is not based
specifically on this alleged misrepresentation. The statement,
however, represents another occasion when Narachi and
Hagan may have misrepresented the benefits of Contrave,
which evinces the same scheme alleged in Count I.
Therefore, the article – to the extent it contains an alleged
misrepresentation – forms the basis of Count I. The district
court did not abuse its discretion by incorporating this article.

        2. SEC Filings and Attachments.

            a. February 27, 2015 Form 10-K

    The Complaint certainly quotes Orexigen’s February 27,
2015, SEC filing. (Ex. B) But that is not the SEC filing that
Orexigen submitted to the district court, and which the
district court incorporated here. The date “February 27,
2015” does not even appear on the document that Orexigen
submitted. Accordingly, the Complaint did not refer to this
document, and the document did not form the basis of any
claims.    The district court abused its discretion by
incorporating it.

    This apparent misstep – although ostensibly inadvertent
– highlights another risk in overuse of the incorporation-by-
reference doctrine. When parties pile on volumes of exhibits
to their motion to dismiss, hoping to squeeze some into the
complaint, their submissions can become needlessly
unwieldy. Simply reviewing these submissions demands
precious time. It is the parties’ duty to ensure their own
             KHOJA V. OREXIGEN THERAPEUTICS                       31

accuracy. Otherwise, as here, materials may be inserted into
pleadings when they should not be there.

            b. SEC filings regarding Orexigen executive
               compensation

    The Complaint alleges that Executive Defendants Narachi
and Klassen financially benefitted from the “artificially
inflated” Orexigen stock prices after leaking the 25 percent
interim results. In particular, Orexigen’s “2007 Equity
Incentive Plan” permitted Narachi, Klassen, and Hagan to
register their inflated stocks. Also, Orexigen’s corporate
goals – and, by extension, these executives’ compensation
packages – depended on Contrave’s success.

    According to Orexigen, Khoja relied on three SEC filings
(Exs. R, S & U) “to plead scienter against [the executive
defendants] based on Orexigen’s executive compensation and
registration of stock during the class period.”6 Orexigen
asked the district court to incorporate them “so that it may
consider portions of those documents omitted from the
[Complaint] which, among other things, show that such
awards were routinely granted on an annual basis.”

    None of these documents qualified for incorporation. The
Complaint did not refer to any of these documents
extensively enough to warrant incorporation on that ground
alone. Khoja’s claims did not arise from these proxy
statements and incentive plans. Rather, Khoja’s references to


    6
     These filings include Orexigen’s April 22, 2015 Schedule DEF-14A
Proxy Statement (Ex. R), Orexigen’s 2007 Equity Incentive Award Plan
(“Award Plan”) (Ex. U), and Orexigen’s April 30, 2014 Schedule DEF-
14A Proxy Statement (Ex. S).
32            KHOJA V. OREXIGEN THERAPEUTICS

these documents merely demonstrated that there was some
financial incentive to misrepresent the success of Contrave to
the investors.

    Also, in seeking incorporation of these documents,
Orexigen improperly asked the district court to engage in
fact-finding in the course of deciding the sufficiency of the
Complaint. It may be, as Orexigen argued, that those
documents show that such financial incentives were routine.
However, these nuances are irrelevant at the pleading stage.7
Asking the district court to conclude that the alleged financial
incentives were routine went beyond testing the sufficiency
of the claims and into the realm of factual disputes. The
district court abused its discretion by incorporating these
documents for that improper purpose.

             c. March 13, 2015 Form S-8 Registration
                Statement8

    The Complaint references this Registration Statement
twice to allege that “Narachi and Klassen . . . register[ed] six
million Orexigen shares at an artificially inflated price of
$7.08” pursuant to Orexigen’s Award Plan. (Ex. T) The
Complaint also alleges that the Registration Statement
“incorporated by reference the Company’s materially
misleading March 3, 2015 Form 8-K.”

     7
      Orexigen’s proposition is also illogical. Assuming such awards
were “routinely granted,” it is unclear why that necessarily means that
executives would have no motive to commit securities fraud, especially if
“such awards” are, as alleged, incentive-based.
     8
      In its Request for Judicial Notice, Orexigen dated this Form S-8
Registration Statement as March 16, 2015. This was likely a mistake as
the date appearing on the document is March 13, 2015.
             KHOJA V. OREXIGEN THERAPEUTICS                      33

    The Complaint thus refers to the document to establish
(1) the “artificially inflated price” of the shares, and (2) that
the Registration Statement incorporated the “materially
misleading” statements that allegedly caused the “artificially
inflated price.” These allegations form the basis of these
claims. Therefore, the district court did not abuse its
discretion by incorporating this document into the Complaint.

        3. Agency Reports

            a. September 10, 2014 FDA Report on Contrave.

    The Complaint references this report (Ex. A) several
times.9 The Complaint quotes it to show that, around
November 2013, Light Study team members “requested that
Orexigen produce a list of individuals who ‘had knowledge
of the interim results or access to unblended interim data.’”
The Complaint quotes it again to describe Orexigen’s
violation of the DAP and the FDA’s critical reaction to that
violation.

    Still, the claims do not rely on the report itself. They rely,
to an extent, on the historical facts asserted therein. Even so,
the numerous references were sufficiently extensive that
incorporation was justified under Ritchie. The district court
did not abuse its discretion by incorporating this report.




    9
       In its Request for Judicial Notice, Orexigen claimed that the
Complaint referenced this report at ¶10. Although ¶10 references an
“FDA Memorandum of Meeting,” that memorandum does not appear to
be the same report that Orexigen sought to incorporate here.
34             KHOJA V. OREXIGEN THERAPEUTICS

              b. EMA’s December 19, 2014 Press Release –
                 “[Contrave] recommended for approval in
                 weight management in adults.”

    Orexigen claimed that the Complaint “references” this
press release. (Ex.F) In fact, the Complaint does not
reference or identify this press release at all. The Complaint
only alleges facts that the press release happens to report:
Orexigen learned in December 2014 that the EMA adopted a
“positive opinion” for Contrave and recommended that the
European Commission authorize marketing in Europe.
Nothing in the Complaint connects this information with this
press release. The facts alleged could have come from other
sources. Therefore, the district court abused its discretion by
incorporating the press release.

         4. USPTO ’371 Patent File History

    According to Orexigen, Khoja “mischaracterize[d] the
content, purpose, and effect of many portions of the ’371
patent’s file history” in the Complaint.10 Orexigen asked the
district court to incorporate that history (Ex. H) “to obtain an
accurate understanding of” it.

    Again, the Complaint does not refer to the particular
“USPTO file history” that Orexigen presented to the court.
Although the Complaint alleges facts that may appear there,
those facts could have come from other sources.

   At the same time, Count II claims that the Executive
Defendants engaged in a scheme improperly to publish Light

    10
       The ’371 Patent is the patent that was issued as a result of the 2014
Patent Application.
             KHOJA V. OREXIGEN THERAPEUTICS                    35

Study results through a patent application. To the extent the
Complaint alleges that the timing of Orexigen’s actions
evinces a scheme, the USPTO file history is certainly relevant
because it sets forth the timeline. However, the sufficiency
of the alleged scheme itself does not depend on what the
entire USPTO file history says. Whether Orexigen has other
reasons or explanations for publishing the patent goes beyond
the sufficiency of the alleged scheme at the pleading stage.
It was, therefore, an abuse of discretion to incorporate the
entire USPTO ’371 patent file history.

    To the extent the district court properly judicially noticed
or incorporated by reference any of the above documents, the
next issue is whether the district court properly considered
those documents in dismissing Khoja’s claims.

II. Dismissal for Failure to State a Claim Under The
    Securities Exchange Act.

    A. Legal Standard

   Dismissal “is appropriate only where the complaint lacks
a cognizable legal theory or sufficient facts to support a
cognizable legal theory.” Mendiondo v. Centinela Hosp.
Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008).

    “‘To survive a motion to dismiss, a complaint must
contain sufficient factual matter, accepted as true, to state a
claim to relief that is plausible on its face;’ that is, plaintiff
must ‘plead[ ] factual content that allows the court to draw
the reasonable inference that the defendant is liable[.]’”
Telesaurus VPC, LLC v. Power, 623 F.3d 998, 1003 (9th Cir.
2010) (quoting Iqbal, 556 U.S. at 678). “[T]he court [is not]
required to accept as true allegations that are merely
36           KHOJA V. OREXIGEN THERAPEUTICS

conclusory, unwarranted deductions of fact, or unreasonable
inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049,
1055 (9th Cir. 2008) (internal quotation marks and citation
omitted).

    If a claim includes an element of fraud, it must also “state
with particularity the circumstances constituting fraud.” Fed.
R. Civ. P. 9(b). That is, the complaint must allege the “who,
what, when, where, and how” of the fraud. Vess v. Ciba-
Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003).

    If a claim alleges securities fraud, the Private Securities
Litigation Reform Act (“PSLRA”), 15 U.S.C. § 78u-4, also
applies. When the alleged fraud is a material misstatement or
omission, “the complaint shall specify [1] each statement
alleged to have been misleading, [2] the reason or reasons
why the statement is misleading, and, [3] 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. Count I - Material Misstatements and Omissions
        (Rule 10b-5)

    To plead a primary violation of SEC Rule 10b-5, a
complaint must allege “1) a material misrepresentation or
omission by the defendant [falsity]; 2) scienter; 3) a
connection between the misrepresentation or omission and
the purchase or sale of a security; 4) reliance upon the
misrepresentation or omission; 5) economic loss; and 6) loss
causation.” In re Rigel Pharm., Inc. Sec. Litig., 697 F.3d at
876.
             KHOJA V. OREXIGEN THERAPEUTICS                    37

    The district court’s dismissal of Count I was based on the
elements of falsity and materiality. Accordingly, the analysis
here is limited to those issues. In re Gilead Scis. Sec. Litig.,
536 F.3d at 1055 (limiting consideration of Rule 10b-5 claim
to sole issue the district court addressed because, generally,
“a federal appellate court does not consider an issue not
passed upon below”).

    Falsity is alleged when a plaintiff points to defendant’s
statements that directly contradict what the defendant knew
at that time. See In re Atossa Genetics Inc. Sec. Litig.,
868 F.3d 784, 794–96 (9th Cir. 2017) (finding that plaintiff
pled falsity where defendants said a drug had “gone through
all of the FDA clearance process,” but it had not received
FDA clearance). Indeed, “[t]o be misleading, a statement
must be capable of objective verification.” Retail Wholesale
& Dep’t Store Union Local 338 Ret. Fund v. Hewlett-Packard
Co., 845 F.3d 1268, 1275 (9th Cir. 2017).

      Even if a statement is not false, it may be misleading if it
omits material information. In re NVIDIA Corp. Sec. Litig.,
768 F.3d 1046, 1054 (9th Cir. 2014). “Disclosure is required
. . . only when necessary ‘to make . . . statements made, in the
light of the circumstances under which they were made, not
misleading.’” Matrixx Initiatives, Inc. v. Siracusano,
563 U.S. 27, 44 (2011) (quoting 17 C.F.R. § 240.10b-5(b)).
As such, “companies can control what they have to disclose
under these provisions by controlling what they say to the
market.” Id. at 45. “But 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.” Schueneman v. Arena Pharm., Inc., 840 F.3d
38          KHOJA V. OREXIGEN THERAPEUTICS

698, 705–06 (9th Cir. 2016) (quotation marks and citation
omitted).

    Whether its allegations concern an omission or a
misstatement, a plaintiff must allege materiality. “[A]
misrepresentation or omission is material if there is a
substantial likelihood that a reasonable investor would have
acted differently if the misrepresentation had not been made
or the truth had been disclosed.” Livid Holdings Ltd. v.
Salomon Smith Barney, Inc., 416 F.3d 940, 946 (9th Cir.
2005).

    The Supreme Court has eschewed brightline tests for
materiality. Matrixx Initiatives, 563 U.S. at 398 (citing Basic
Inc. v. Levinson, 485 U.S. 224, 236 (1988)). At a minimum,
“[p]laintiffs’ allegations must suffice to raise a reasonable
expectation that discovery will reveal evidence satisfying the
materiality requirement, and to allow the court to draw the
reasonable inference that the defendant is liable.” In re
Atossa Genetics Inc. Sec. Litig., 868 F.3d at 794.

    The district court identified five statements that arguably
supported Khoja’s claims in Count I. We address each in
turn.

       1. March 2015 Form 8-K.

    The March 2015 Form 8-K announced the publication of
the 2014 Patent Application, the Light Study, and 25 percent
interim results. It stated:

       The 371 Patent and the Provisional Patent
       Applications contain claims related to a
       positive effect of Contrave on CV outcomes.
            KHOJA V. OREXIGEN THERAPEUTICS                   39

       The observed effects on CV outcomes were
       unexpected and appear to be unrelated to
       weight change. . . .

       The 25% Interim Analysis was prospectively
       designed to enable an early and preliminary
       assessment of safety to support regulatory
       approval. A larger number of MACE are
       required to precisely determine the effect of
       Contrave on CV outcomes.

The March 2015 Form 8-K also included a graph that showed
a lower occurrence of MACE in patients on Contrave than in
patients on placebos.

    Khoja alleges that the chart and Orexigen’s description in
the March 2015 Form 8-K were false and misleading. First,
Orexigen failed to disclose that the interim results “were
‘unreliable,’ ‘likely false,’ and ‘misleading.’” Orexigen
further failed to disclose that it violated the DAP by releasing
the 25 percent interim results, and, as a result, could face
penalties. Finally, Orexigen omitted the fact that it had,
itself, requested the publication of the 2014 Patent
Application so that investors would see the positive, yet
unreliable interim results.

    The district court dismissed these theories with prejudice.
First, the district court found that Orexigen did not
misrepresent the interim results. The district court reasoned
that Orexigen “did not claim that the results were statistically
significant.” Also, the court noted that Orexigen cautioned
that . . . “‘[a] larger number of MACE are required to
precisely determine the effect of Contrave on CV outcomes.’”
In other words, according to the district court, even though
40          KHOJA V. OREXIGEN THERAPEUTICS

Orexigen did not outright say that the 25 percent interim
results were unreliable, Orexigen sufficiently warned its
investors by saying the results were preliminary.

    But per the Complaint, the FDA previously had told
Narachi and Klassen that “25 [percent] interim results have
‘a high degree of uncertainty and were likely to change with
the accumulation of additional data.’” The question is
whether Orexigen had a duty to reveal this when discussing
the interim results in the 2015 Form 8-K.

    Our decision in Berson v. Applied Signal Technology,
Inc., 527 F.3d 982 (9th Cir. 2008) is instructive. There, the
defendant allegedly received several stop-work orders from
its government clients. Id. at 983. Such orders typically
signaled that the work would never be completed, thus
leading to an immediate loss of revenue. Id. Yet, the
defendants counted those orders in its “backlog report” of
work to be completed. Id. at 985–86. The backlog report
noted the “customers’ rights to ‘cancel’ or ‘modify’ existing
contracts,” but said “nothing about the right to simply stop
work and thus immediately interrupt the company’s revenue
stream.” Id. at 986 (quotation marks omitted). Instead, the
defendants spoke “entirely of as-yet-unrealized risks and
contingencies,” and failed to alert the investors that “some of
these risks may already have come to fruition.” Id. We
concluded that “[h]ad defendants released no backlog reports,
their failure to mention the stop-work orders might not have
misled anyone. But once defendants chose to tout the
company’s backlog, they were bound to do so in a manner
that wouldn’t mislead investors as to what that backlog
consisted of.” Id. at 987.
            KHOJA V. OREXIGEN THERAPEUTICS                  41

    Similarly here, once Orexigen chose to tout the apparently
positive 25 percent interim results, Orexigen had the
obligation also to disclose that they were likely unreliable.
As the district court found, Orexigen claims it sufficiently
warned its investors about the reliability of the 25 percent
interim results. Orexigen points to qualifiers in the March
2015 Form 8-K that label the 25 percent interim results as
“early,” and “preliminary”; that emphasize “the effect of
Contrave . . . has not been established”; that “a larger number
of [MACE] are required to precisely determine the effect of
Contrave”; and that “[t]he interim analysis may not be
predictive of future results.” But telling investors that the
data might change is different from saying the data already
has “a high degree of uncertainty” and is likely to change.
Without this information, the “surprising” 25 percent interim
results appeared more promising than Orexigen allegedly
knew they were. Consequently, the March 2015 Form 8-K is
like the backlog report in Berson, which included work that
the defendants knew would likely never be completed. See
Berson, 527 F.3d at 987.

    Khoja has thus pled a plausible claim that Orexigen had
a duty to disclose that the 25 percent interim results in the
March 2015 Form-8K were unreliable. See In re NVIDIA
Corp. Sec. Litig., 768 F.3d at 1052. It is possible that a jury
might find that Orexigen’s hedging about the preliminary
nature of the results was enough to satisfy that duty. For
pleading purposes, though, the Complaint sufficiently alleges
that Orexigen’s failure to disclose the unreliability of the
25 percent interim results in the March 2015 Form-8K was
misleading. The district court erroneously dismissed this
claim.
42            KHOJA V. OREXIGEN THERAPEUTICS

    The district court also dismissed Khoja’s theory that the
March 2015 Form 8-K misled investors because Orexigen did
not disclose that it had violated the DAP by releasing the
25 percent interim results. Although Orexigen touted the
interim results and therefore created a duty to disclose the
corresponding adverse information, Orexigen never touted
having permission to publish the results. Even though
violating the DAP could have negative consequences for
Orexigen (and its investors), Orexigen did not have a duty to
share that information. The Complaint does not identify
earlier statements by Orexigen that suggest a duty either. The
district court properly dismissed this theory. See Matrixx
Initiatives, 563 U.S. at 44–45.

    However, the district court dismissed this theory with
prejudice. Khoja has not yet amended the Complaint.11
Given our policy favoring leave to amend, Khoja should have
an opportunity to amend this claim on remand. Fed. R. Civ.
P. 15; see also Owens v. Kaiser Found. Health Plan, Inc.,
244 F.3d 708, 712 (9th Cir. 2001) (observing this circuit
views this rule with “extreme liberality” (internal quotation
marks omitted)).




     11
       We do not hold against Khoja the fact that he declined to amend the
Complaint to correct claims that were dismissed without prejudice, and
instead sought a final order expeditiously to appeal all claims. See
Edwards v. Marin Park, Inc., 356 F.3d 1058, 1064 (9th Cir. 2004)
(observing that plaintiff “made a reasonable choice to expedite the rest of
the case” by seeking a final order and declining to amend the complaint
given the district court’s order “dismissing most of her claims” and
granting leave to amend only one).
               KHOJA V. OREXIGEN THERAPEUTICS                           43

         2. March 2015 Press Release.

    The Complaint alleges that Orexigen’s March 3, 2015,
press release was misleading. The press release stated, in
part, “[t]his morning the USPTO published the patent and
supporting documentation.”

     Khoja claims that Orexigen failed to reveal the extent of
its role in publishing the 2014 Patent Application. Khoja
appears to have two theories. First, Orexigen failed to reveal
that it supplied the 25 percent interim results in its 2014
Patent Application, thus violating the DAP. Khoja claims the
investors had a right to know about that violation because of
its possible negative consequences. Orexigen then submitted
the 2014 Patent Application confidentially to hide the DAP
violation from investors. Second, Orexigen failed to share
that Orexigen requested that the USPTO publish the 2014
Patent Application, thus facilitating another leak of the
interim results, and another violation of the DAP.

    The district court rejected these theories. The district
court was, in part, correct to do so, but it did so for incorrect
reasons.

    First, the district court held that Orexigen was required to
submit the 25 percent interim results to the USPTO because
of a patent theory called “enablement.”12 Without going into

    12
       “Enablement is the requirement that a patent teach a person skilled
in the art (the field of the invention) how to make and use the invention
without undue experimentation. In other words, a patent must describe the
invention clearly enough so that a skilled person in the field can replicate
the invention without having to perform experiments to determine how to
make and use the invention.” Audrey A. Millemann, Enablement Is Key
– Especially in Biotech Paatents, IPL. Blog (Apr. 17, 2015),
44           KHOJA V. OREXIGEN THERAPEUTICS

the nuances of patent law, “enablement” is sometimes a fact-
driven inquiry. See Dow Chems. Co. v. Nova Chems. Corp.
(Can.), 809 F.3d 1223, 1225 (Fed. Cir. 2015). On appeal,
Khoja argues that a factual question existed below as to
whether Orexigen needed to disclose data to demonstrate
enablement. In fact, the Complaint never mentioned
enablement, and neither did Orexigen. Khoja never had the
opportunity to assert that factual dispute below. Because the
district court imposed this fact-driven defense on Khoja,
Khoja should have had the opportunity to develop the record
and litigate the issue. See Fed. R. Civ. P. 12(b) (requiring
that parties have “reasonable opportunity to present all
material made pertinent to [the converted motion for
summary judgment]”); Bonilla v. Oakland Scavenger Co.,
697 F.2d 1297, 1301 (9th Cir. 1982) (recognizing that it is
reversible error when a court considers material outside the
pleading on a Rule 12(b)(6) motion and yet fails to convert it
into a motion for summary judgment); In re Tracht Gut,
836 F.3d at 1150 (“At the motion to dismiss phase, the trial
court must accept as true all facts alleged in the complaint
and draw all reasonable inferences in favor of the plaintiff.”).

    As for seeking the publication of the 2014 Patent
Application, the district court held that Orexigen was
obligated to do so because it filed the WIPO Application for
Contrave on December 14, 2015. Once Orexigen filed the
WIPO Application, Orexigen was required to notify the
USPTO within forty-five days or the 2014 Patent Application
would be deemed abandoned under 35 U.S.C.
§ 122(b)(2)(B)(iii).



http://www.theiplawblog.com/2015/04/articles/patent-law/enablement-is-
key-especially-in-biotechpatents/.
            KHOJA V. OREXIGEN THERAPEUTICS                  45

    Although possibly correct, this reasoning misses the point
of the claim. Even if Orexigen was “obligated” to publish the
2014 Patent Application, the issue is whether Orexigen
(1) misrepresented its role in the publication process, (2) had
a duty to disclose the fact that Orexigen first requested that
the USPTO keep the 2014 Patent Application confidential,
and (3) had a duty to disclose that Orexigen later rescinded
that request, thus disclosing the positive, but unreliable
25 percent interim results.

    As to the first issue, per the Complaint, the March 2015
press release did not directly state that the USPTO
“independently published” the patent. Instead, the press
release stated simply that, “the USPTO published the patent
and supporting documentation.” This statement is not false.
Khoja does not contend, nor could he reasonably contend,
that USPTO did not publish the patent.

   Orexigen also did not have a duty, absent a statement
suggesting otherwise, to tell its investors that it originally
requested that the 2014 Patent Application remain
confidential. Khoja does not allege that Orexigen ever
suggested anything about the 2014 Patent Application’s
confidentiality.

    Nonetheless, Orexigen’s statement that “the USPTO
published the patent,” gives rise to a duty to elaborate. By
itself, this statement only indicates who published the patent
and nothing more. On the other hand, this statement
plausibly gives the impression that the USPTO published the
patent on its own. Ordinarily, this may be a fair impression
to give. As alleged here, though, the patent had remained
confidential until Orexigen sought its publication. And it was
confidential because Orexigen asked the USPTO to make it
46           KHOJA V. OREXIGEN THERAPEUTICS

confidential. Saying only that “the USPTO published the
patent” may have mislead Orexigen’s investors about why the
USPTO published the patent, and why it was not published
sooner.

    This omission was arguably material. If the investors
knew that Orexigen had something to do with publishing the
2014 Patent Application, the investors would have known
that Orexigen had a direct role in revealing the 25 percent
interim results, thus violating the FDA’s rules again and
risking the integrity of the Light Study. Because such
violations might – and allegedly did – impact the financial
health of Orexigen, that information was likely material to
reasonable investors. Ultimately, a jury should assess
materiality as a question of fact. Fecht v. Price Co., 70 F.3d
1078, 1080–81 (9th Cir. 1995).

     At a minimum, accepting the allegations in the Complaint
as true, and reading them in the light most favorable to Khoja,
we conclude that the Complaint alleges a plausible claim that
Orexigen materially misled its investors in the March 2015
press release. Specifically, by failing to inform investors
about Orexigen’s role in publishing the 2014 Patent
Application, Orexigen arguably gave the false impression that
it played no role in revealing the 25 percent interim results.

    Therefore, because the district court relied, at least in part,
on a fact-driven defense not raised by either party to dismiss
Count I, we reverse. To the extent the district court dismissed
Count I because the March 2015 Press Release did not
affirmatively misrepresent that the USPTO “independently
published” the 2014 Patent Application, we would ordinarily
affirm. However, the district court dismissed this claim with
prejudice. Khoja should have an opportunity to amend this
            KHOJA V. OREXIGEN THERAPEUTICS                    47

claim. Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d
1048, 1052 (9th Cir. 2003) (observing that the liberal
application rule of Federal Rule of Civil Procedure 15 applies
to claims subject to the PSLRA, where plaintiffs must plead
“with an unprecedented degree of specificity” and “drafting
of a cognizable complaint can be a matter of trial and error”).
Accordingly, we also reverse the district court’s dismissal of
Count I on that basis.

        3. May 2015 Form 8-K.

     Khoja alleges that Orexigen’s May 2015 Form 8-K
included material misstatements, and omitted material
information. The May 2015 Form 8-K describes the clinical
trial program for Contrave and states, in pertinent part, “The
clinical trial program also includes a . . . trial known as the
Light Study.”

    Khoja appears to have three theories about why this
statement is actionable. He alleges that the statement
(1) misrepresented “that the Light Study was ongoing,”
(2) omitted that the ESC terminated the Light Study weeks
earlier on March 26, 2015, and (3) omitted the 50 percent
interim results, which “demonstrated that [Orexigen’s] prior
representations about Contrave’s purported [heart] benefit
were false.”

    As to the first and second theories, the district court found
that the ESC did not terminate the Light Study on March 26,
2015. Therefore, Orexigen could not have misrepresented or
omitted something that had not yet occurred. In reaching this
conclusion, the district court agreed with Orexigen that “the
ESC’s vote [on March 26, 2015] was merely a
recommendation.”         The district court relied on the
48          KHOJA V. OREXIGEN THERAPEUTICS

Complaint’s allegation that “[t]he executive committee voted
unanimously to recommend that the trial be stopped.”

    However, other portions of the Complaint indicate that
ESC’s vote was not merely a recommendation. The
Complaint quotes from a May 12, 2015 press release, which
stated “the 9,000-patient Light Trial – designed to study the
cardiovascular safety of . . . Contrave . . . – has been halted
by the trial’s [ESC].” (Emphasis in Comp.) The phrase “has
been halted by the trial’s [ESC]” clearly implies that (1) the
ESC has the authority to halt (or terminate) a study and
(2) the ESC already did precisely that with the Light Study.
Similarly, the Complaint alleges that, on March 26, 2015, the
ESC informed Orexigen that “the ESC had voted
unanimously to halt the Light Study as a result of
[Orexigen’s] improper March 3, 2015 disclosure breach.”
The Complaint’s allegations are based, in part, on discussions
that Khoja’s counsel had with Dr. Nissen. As the chair of the
ESC, Dr. Nissen likely would have had personal knowledge
of the termination decision, and, more importantly, when it
occurred.

    At a minimum, then, these allegations support a plausible
inference that the ESC terminated the Light Study before
May 2015. By then stating that Contrave’s “clinical trial
program also includes . . . the Light Study,” Orexigen gave
the false impression that the Light Study was still underway.

    The district court appears to have concluded that, even if
the Light Study was terminated on March 26, 2015,
“Orexigen had already reported to the press that it was
recommending ‘that [the Light Study] be stopped’” by the
time Orexigen filed the May 2015 Form 8-K. The district
court relied on a report that it incorporated by reference: the
            KHOJA V. OREXIGEN THERAPEUTICS                  49

April 6, 2015, Leerink Partner report. See, supra Part I.B.1.f.
The district court properly incorporated that report, but the
district court incorrectly inferred that the report amounted to
a “prior disclosure that [Orexigen] was recommending
termination of the Light Study.”

    The report was published on April 6, 2015. This was only
days after “the ESC had voted unanimously to halt the Light
Study as a result of [Orexigen’s] improper March 3, 2015
disclosure breach.” Per the report, Orexigen “ha[d]
recommended” that the Light Study “be stopped” because it
“is not a post-marketing requirement and has less utility over
time[.]’” But, according to the Complaint, the Light Study
ended because the ESC unanimously voted to terminate it. In
other works, the Leerink report characterizes the Light Study
termination as a practical, voluntary decision by Orexigen,
but the Complaint portrays the termination as punishment by
the ESC.

    Thus, contrary to what the district court found, it was far
from obvious that the April 6 report amounted to a prior,
accurate disclosure about the fate of the Light Study. See
Fecht, 70 F.3d at 1081 (“Only if the adequacy of the
disclosure or the materiality of the statement is so obvious
that reasonable minds could not differ are these issues
appropriately resolved as a matter of law.” (internal
quotation marks and alterations omitted)). Therefore, the
report could not plausibly rescue Orexigen from its alleged
misrepresentations in the May 2015 Form 8-K.

   The district court’s reasoning here again demonstrates the
danger in incorporating documents en masse into complaints.
Once documents are incorporated into a complaint, a district
court faces competing, often inconsistent versions of the
50          KHOJA V. OREXIGEN THERAPEUTICS

facts. Although plaintiffs are ordinarily afforded the benefit
of every favorable inference, the incorporation-by-reference
doctrine can allow defendants to exploit that benefit for
themselves. Here, the district court accepted the statements
in the Leerink report as true, and concluded that they
absolved any earlier failure by Orexigen to make a more
thorough disclosure about the Light Study’s termination.
Although incorporation by reference generally permits courts
to accept the truth of matters asserted in incorporated
documents, we reiterate that it is improper to do so only to
resolve factual disputes against the plaintiff’s well-pled
allegations in the complaint. The incorporation-by-reference
doctrine does not override the fundamental rule that courts
must interpret the allegations and factual disputes in favor of
the plaintiff at the pleading stage. See Sgro, 532 F.3d at 942,
n.1 (finding it proper to consider a disability benefits plan
referenced in complaint, but declining to accept the truth of
the plan’s contents where the parties disputed whether
defendant actually implemented the plan according to its
terms); see also In re ECOtality, Inc. Sec. Litig., No. 13-
03791, 2014 WL 4634280, at *3 (N.D. Cal. Sept. 16, 2014)
(declining to assume the truth of incorporated documents
where it “would mean assuming the truth of all of
Defendants’ allegedly false or misleading statements,” which
would make it “impossible ever to successfully plead a fraud
claim”). For this additional reason, the district court erred in
dismissing Khoja’s claim that Orexigen misrepresented the
status of the Light Study in its May 2015 Form 8-K.

    The district court also concluded that the May 2015 Form
8-K did not misrepresent or omit the 50 percent interim
results. Khoja does not clearly allege that the May 2015
              KHOJA V. OREXIGEN THERAPEUTICS                         51

Form 8-K misrepresented the 50 percent interim results,13 but
even if he intended to do so, the district court was correct.
The May 2015 Form 8-K did not mention the 50 percent
interim results, so it could not have made a misstatement
about them. Therefore, to the extent Count I is based on
alleged misstatements about the 50 percent interim results in
the May 2015 Form 8-K, the district court properly dismissed
that claim.

    As for the omission of the 50 percent interim results, the
district court was incorrect. The district court found that
Orexigen did not materially omit those results because
Orexigen had no duty to disclose them. The district court
reasoned that Orexigen’s earlier statements about the
25 percent interim results remained accurate because those
results “still showed ‘a positive effect of Contrave on CV
outcomes.’”

    This conclusion, however, reads the May 2015 Form 8-K
– and Khoja’s claim – too narrowly. Although the 25 percent
interim results were still technically accurate, the issue is
whether, having learned new information that diminished the
weight of those results, Orexigen was obligated to share that
information.

    We conclude that Orexigen was so obligated. The
25 percent interim results were a boon to Orexigen. Upon
their release, stocks traded in unusually high volumes and at


    13
      The confusion likely arose from Khoja’s imprecise pleading of this
claim. He listed numerous facts that were “materially false and
misleading and/or [Orexigen] failed to disclose.” The “and/or” obscured
whether each following statement was supposedly omitted or
misrepresented.
52          KHOJA V. OREXIGEN THERAPEUTICS

higher prices. Analysts hailed Contrave as a potential miracle
drug. The Complaint sufficiently pled that, even if investors
understood that more results were necessary to confirm
Contrave’s potential heart benefit, the 25 percent interim
results clearly suggested a promising venture. Naturally, if
subsequent data indicated those earlier interim results were
not so promising after all, their value diminished. Because
the 50 percent interim results did precisely that, Orexigen had
a duty to disclose them. See Berson, 527 F.3d at 987.

    Therefore, we conclude that in relying on the alleged
omissions from the May 2015 Form 8-K, Count I sufficiently
pled a claim under SEC Rule 10b-5.

       4. May 2015 Form 10-Q.

    The Complaint asserts that, on the same day as the May
2015 Form 8-K, Orexigen also filed a misleading Form 10-Q.
Similar to the May 2015 Form 8-K, the Form 10-Q allegedly
failed to disclose the termination of the Light Study and the
50 percent interim results.

    In dismissing this claim, the district court reasoned that
Khoja’s argument on this claim was “largely similar” to
Khoja’s argument for the May 2015 Form 8-K claim,
described above. Accordingly, the district court adopted the
same reasoning for dismissing both the May 2015 Form 8-K
and 10-Q claims. However, these two claims are different.
In fact, per the Complaint, the May 2015 Form 10-Q was
even more misleading than the Form 8-K.

    In the May 2015 Form 10-Q, Orexigen represented that its
“share price might be impacted by announcements regarding
our clinical trials, including [ ] the Light Study[.]” (Emphasis
            KHOJA V. OREXIGEN THERAPEUTICS                    53

in Comp.) The Form 10-Q further indicated the possibility of
“new data from the continuing Light Study[.]” (Emphasis in
Comp.)

   As discussed above, the Complaint sufficiently pled that
Orexigen knew the Light Study was terminated by May 2015,
when Orexigen submitted the instant Form 10-Q. If so,
suggesting that the Light Study was “continuing” was an
obvious, affirmative misrepresentation. Retail Wholesale,
845 F.3d at 1275–76.

    Orexigen then went on to say that the “new data from the
continuing Light Study . . . may be inconsistent with the
conclusion that the interim analysis was successful.”
(Emphasis in Comp.) Yet, Orexigen allegedly knew already
that the “new data” revealed exactly that. The Complaint
therefore sufficiently pleads that Orexigen materially omitted
the 50 percent interim results from the May 2015 Form 10-Q.

   Accordingly, we reverse the district court’s dismissal of
Count I to the extent it is premised on alleged omissions from
and misrepresentations in the May 2015 Form 10-Q.

        5. May 2015 Earnings Conference Call.

    The Complaint alleges that during the May 8, 2015,
conference call, Klassen and Narachi (1) misrepresented the
status of the Light Study and (2) omitted the 50 percent
interim results. Again, the district court concluded that “the
parties’ arguments . . . are largely repetitive of” those for the
May 2015 Forms 8-K and 10-Q and, therefore, found no
omissions or misstatements. And again, although these
claims deal with similar alleged misconduct, they are distinct.
54             KHOJA V. OREXIGEN THERAPEUTICS

    Posed with specific questions about the fate of the Light
Study, Narachi said during the call that “if there was a
decision to terminate the trial and move on and focus
resources on the new [trial], that would be a disclosure that
we would make.”14 (Emphasis in Comp.) By expressing the
decision as a hypothetical, Narachi suggested that decision
had not yet occurred. As alleged in the Complaint, however,
Narachi knew the Light Study was already terminated.

     Even accepting Orexigen’s position that the ESC had only
recommended terminating the Light Study, Orexigen was still
obligated to share that development. Narachi and Klassen
repeatedly discussed the status of the Light Study and the
possible “decision to terminate” it. ESC’s recommendation
to terminate the Light Study would have pertained directly to
the status of the Light Study. Without that information,
termination seemed only a remote possibility. With that
information, a reasonable investor would understand that
termination may be imminent. The Complaint sufficiently
alleged that Narachi and Klassen either materially
misrepresented or omitted that information.

    Narachi’s and Klassen’s statements about the 50 percent
interim results are a closer question. Klassen stated that “I
don’t think we’re going to go into the details [about the 50
percent interim results], because again that’s a look that DNC
does.” Klassen was apparently trying to control what he
shared about the 50 percent interim results, and thereby avoid


     14
       Narachi said something similar twice more: “So, if the decision is
made to terminate the trial early and focus resources on the next [trial],
which is what we have been advocating, then I think results would come
out sooner . . . , if you decide to stop the study now there will be additional
events, so these details are being discussed . . . .” (Emphasis in Comp.)
            KHOJA V. OREXIGEN THERAPEUTICS                    55

a duty to share more. But he then went on to say, that “it’s
really on the 25 percent analysis that was used for regulatory
purposes. So if any of that status changes, then we would of
course announce that.” One could reasonably interpret
Klassen’s statement to mean that if the value of the
25 percent interim analysis changed in light of new data,
Orexigen would announce it. Yet Klassen allegedly knew the
50 percent interim results indicated that Contrave did not
have a heart benefit. Regardless of what Klassen meant, the
Complaint sufficiently alleged he had a duty to share the
50 percent interim results. As discussed above, by touting
and publishing the “surprisingly” positive 25 percent interim
results, Orexigen created its own obligation to report that
those results did not pan out after all.

    Admittedly, Orexigen put itself into a corner; either fulfill
its duty to disclose by violating the DAP again, or risk
misleading the investors. Orexigen created this dilemma by
violating the DAP in the first place. Orexigen cannot ignore
the DAP to its benefit, then use it to conceal its own
misconduct. Orexigen cites no law to suggest that its
obligations under the DAP overrode its obligations under
§10 of the Securities Exchange Act and SEC Rule 10b-5.
See, e.g., X Corp. v. Doe, 805 F. Supp. 1298, 1310 n.24 (E.D.
Va. 1992), (finding that, “[t]o the extent” a confidentiality
agreement “prevented disclosure of evidence of fraud,” the
agreement “would be void as contrary to public policy”
where the party “cannot rely on any contract to conceal illegal
activity”), aff’d sub nom. Under Seal v. Under Seal, 17 F.3d
1435 (4th Cir. 1994).

    For the reasons stated above, the Complaint sufficiently
alleged that Narachi misrepresented the status of the Light
Study and that Klassen omitted material information about
56            KHOJA V. OREXIGEN THERAPEUTICS

the 50 percent interim results. We reverse the district court’s
decision to the contrary.

     C. Count II - Scheme Liability (SEC Rules 10b-5(a)
        and (c))15

    The Complaint alleges that Orexigen and the Executive
Defendants violated § 10(b) of the Securities Exchange Act,
and SEC Rules 10b-5(a) and (c). “Under Rule 10b-5(a) or
(c), a defendant who uses a ‘device, scheme, or artifice to
defraud,’ . . . may be liable for securities fraud.” WPP Lux.
Gamma Three Sarl v. Spot Runner, Inc., 655 F.3d 1039, 1057
(9th Cir. 2011) (quoting 17 C.F.R. § 240, SEC Rules 10b-5(a)
and (c)). The scheme must “encompass[] conduct beyond
those misrepresentations or omissions.” Id.

    Count II alleges Orexigen and its executives
“disseminated or approved the false statements specified” in
the Complaint, and engaged in a fraudulent scheme “to
conceal and then publish the interim Light Study data via the
2014 Patent Application.” Count II incorporates all of the
allegations in the Complaint, but does not specify what steps,
if any, Orexigen or the Executive Defendants took in
furtherance of the alleged scheme. The Complaint concludes
that their “misconduct is distinct from the materially
misleading statements pertaining to Count I,” but does not
explain how. Arguably, a scheme “to conceal and then
publish the interim Light Study data via the 2014 Patent
Application” is distinct from the fraudulent
misrepresentations therein. However, the Complaint does not



   15
      The district court dismissed Count II with prejudice against Hagan.
Khoja does not challenge that ruling on appeal.
            KHOJA V. OREXIGEN THERAPEUTICS                   57

articulate how such a scheme, by itself, is actionable under
SEC Rules 10b-5(a) and (c).

    The district court dismissed Count II without prejudice
because it could not discern the substance of the claim. We
affirm, but as above, instruct that Khoja should be granted
leave to amend to cure that deficiency.

   D. Count III - Controlling Individuals’ Liability
      (§ 20(a) of the Securities Exchange Act)

    The Complaint alleges that the Executive Defendants
were “controlling” individuals under § 20(a) of the Securities
Exchange Act. They could allegedly “influence and control
and did influence and control . . . the decision-making of
[Orexigen], including the content and dissemination of the”
misleading statements alleged in the Complaint. Therefore,
they might be liable under § 20(a).

    The district court correctly noted that “‘Section 20(a)
claims may be dismissed summarily . . . if a plaintiff fails to
adequately plead a primary violation of section 10(b).’”
(quoting Zucco Partners, LLC v. Digimarc Corp., 552 F.3d
981, 990 (9th Cir. 2009), as amended (Feb. 10, 2009).

    Because the district court found that Khoja’s claims under
§ 10(b) failed, the district court dismissed the claim under
§ 20(a). However, as set forth above, Khoja has sufficiently
pled a number of primary violations of § 10(b). Further, he
has been granted leave to amend as to others. On remand, the
district court should reconsider the sufficiency of Count III in
that light.
58           KHOJA V. OREXIGEN THERAPEUTICS

                      CONCLUSION

    Accordingly, we affirm, in part, and reverse, in part, the
district court’s dismissal of Khoja’s Complaint, and
REMAND with instructions regarding the judicial notice and
incorporation by reference of Orexigen’s exhibits to its
Motion to Dismiss. Specifically, we REVERSE and
REMAND for clarification on Exhibit D consistent with this
opinion, we REVERSE the district court’s judicial notice of
Exhibit E, and AFFIRM the judicial notice of Exhibit V. We
REVERSE the district court’s incorporation-by-reference of
Exhibits B, C, F, H, R, S, and U. We AFFIRM the
incorporation of Exhibits A, I, K, L, N, O, P, and T.

    As to Count I, we AFFIRM, in part, and REVERSE, in
part, the district court’s dismissal. Where AFFIRMING, we
GRANT LEAVE TO AMEND the Complaint.

    As to Count II, we AFFIRM the district court’s dismissal,
but, again, with leave to amend the Complaint.

    As to Count III, we REVERSE so the district court may
reconsider those claims in light of our reversal of the district
court’s dismissal of claims in Count I and in light of any
amendments to the Complaint.

     Each party shall bear his own costs on appeal.

  AFFIRMED in part, REVERSED in part, and
REMANDED.

    The foregoing disposition of this appeal pertains only to
Plaintiff’s claims against the Executive Defendants , Narachi,
Hagan, and Klassen.
            KHOJA V. OREXIGEN THERAPEUTICS                 59

    With respect Defendant-Appellee Orexigen, appellate
proceedings remain stayed pending resolution of the
bankruptcy proceedings. See footnote 1, supra. The Clerk
shall administratively close this docket with respect to
Orexigen pending further order of the Court, but the mandate
shall not issue with respect to Orexigen. Within 28 days after
resolution of the bankruptcy proceeding or the lifting of the
automatic bankruptcy stay, which occurs earlier, Orexigen
shall file a status report with the Clerk.
