                               PUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT


                              No. 13-2370


ROMAN ZAK, Individually       and   On   Behalf     of   All   Others
Similarly Situated,

                Plaintiff - Appellant,

and

CAMERON MCINTYRE, Individually and On Behalf of All Others
Similarly Situated

                Plaintiff,

           v.

CHELSEA THERAPEUTICS INTERNATIONAL,         LTD.;    SIMON     PEDDER;
WILLIAM D. SCHWIETERMAN,

                Defendants – Appellees,

and

L. ARTHUR HEWITT; J. NICK RIEHLE,

                Defendants.


Appeal from the United States District Court for the Western
District of North Carolina, at Charlotte. Max O. Cogburn, Jr.,
District Judge. (3:12-cv-00213-MOC-DCK)


Argued:   December 10, 2014                  Decided:      March 16, 2015


Before TRAXLER, Chief Judge, and, KEENAN and THACKER, Circuit
Judges.
Vacated and remanded by published opinion.    Judge Keenan wrote
the opinion, in which Chief Judge Traxler joined. Judge Thacker
wrote a separate dissenting opinion.


ARGUED: Richard William Gonnello, FARUQI & FARUQI, LLP, New
York, New York, for Appellant. Barry M. Kaplan, WILSON SONSINI
GOODRICH & ROSATI, Seattle, Washington, for Appellees.        ON
BRIEF: Lee M. Whitman, Tobias S. Hampson, WYRICK ROBBINS YATES &
PONTON LLP, Raleigh, North Carolina; Gregory L. Watts, Seattle,
Washington, Ignacio E. Salceda, Cheryl W. Foung, WILSON SONSINI
GOODRICH & ROASATI, Palo Alto, California, for Appellees Chelsea
Therapeutics International, Ltd., Simon Pedder, and William D.
Schwieterman.




                               2
BARBARA MILANO KEENAN, Circuit Judge:

     The plaintiffs in this case claim that Chelsea Therapeutics

International,     LTD.   (Chelsea)    and    several     of    its     corporate

officers 1 (collectively, the defendants) violated Section 10(b)

of the Securities Exchange Act of 1934 (the Exchange Act), 15

U.S.C.   § 78j(b). 2       Chelsea        stockholder     Roman        Zak,   both

individually and as a class representative for other investors

(the plaintiffs), alleged that the defendants made materially

misleading statements and omissions about the development and

likelihood   of    regulatory   approval     for   a    new    drug,    Northera.

After considering the defendants’ motion to dismiss filed under

Federal Rule of Civil Procedure 12(b)(6), the district court

dismissed    the     complaint,      holding       that       the     plaintiffs’

allegations were insufficient as a matter of law to establish

that the defendants acted with the required scienter.

     On appeal, the plaintiffs contend that the district court

committed two errors.      The asserted errors are: (1) the court’s


     1
        The complaint named as individual defendants Dr. Simon
Pedder, President and Chief Executive Officer; Dr. William
Schwieterman, Vice President and Chief Medical Officer; Dr.
Arthur Hewitt, Vice President and Chief Scientific Officer; and
Mr. Nick Riehle, Vice President and Chief Financial Officer.
However, Dr. Hewitt and Mr. Riehle are not parties to this
appeal.
     2
       In a derivative claim, the plaintiffs also alleged that
the individual defendants violated Section 20(a) of the Exchange
Act, 15 U.S.C. § 78t(a).


                                      3
consideration of certain documents filed with the Securities and

Exchange Commission (SEC) that were submitted as exhibits with

the   defendants’      motion    to     dismiss;         and    (2)      the    court’s

determination that the plaintiffs’ allegations of scienter were

legally insufficient.

      Upon our review, we hold that the district court erred in

taking judicial notice of the challenged documents filed with

the SEC, because those documents did not relate to the contents

of the complaint.        We further hold that this error was not

harmless,    because     the     court        incorrectly         construed       these

documents    as   supporting      its        holding     that     the     plaintiffs’

allegations of scienter were legally insufficient.                        Finally, we

hold that based on the defendants’ failure to disclose critical

information about the weaknesses of the new drug application,

the plaintiffs’ allegations were sufficient to support a strong

inference of scienter.         We therefore vacate the district court’s

judgment    dismissing   the    plaintiffs’           complaint    and    remand      the

case for further proceedings.


                                         I.

      The   plaintiffs   alleged      in      their    pleadings      the      following

facts, which we accept as true in our review of the district

court’s dismissal of the complaint under Federal Rule of Civil

Procedure    12(b)(6).          Matrix        Capital     Mgmt.       Fund,      LP   v.


                                         4
BearingPoint, Inc., 576 F.3d 172, 176 (4th Cir. 2009) (citing

Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322

(2007)).       In 2006, Chelsea began its effort to gain approval

from the Food and Drug Administration (FDA) concerning the right

to   market    the   drug   Northera 3   as    a   treatment    for   symptomatic

neurogenic orthostatic hypotension (NOH).               NOH is a condition in

which a dramatic drop in blood pressure occurs when a person

stands.       This drop in blood pressure causes symptoms such as

dizziness, impaired vision, fatigue, weakness, nausea, and an

inability to think clearly.            NOH is associated with the presence

of   various    disorders     including       Parkinson’s   disease,      multiple

systems atrophy, and pure autonomic failure.

      After     considering     the    “significant      unmet    need”    for     a

clinically     beneficial     treatment       of   symptomatic   NOH,     the    FDA

assigned Northera “orphan drug status.”                 Such status provided

Chelsea with seven years of marketing exclusivity, and reduced

certain time and expense requirements related to clinical trials

mandated for FDA approval of the drug.

      Before submitting its “new drug application” to the FDA,

Chelsea     conducted       numerous     clinical      trials     with     certain

“endpoints,” or goals, to demonstrate the drug’s efficacy and




      3
          The drug’s trade name is droxidopa.


                                         5
safety.            As    relevant    to   this       appeal,    Chelsea      conducted   four

efficacy trials, namely, Studies 301, 302, 303, and 306. 4

      Studies 301 and 302 began in 2008.                         Both those studies had

the         same        general     efficacy         endpoint     of    demonstrating       a

statistically              significant         effect      on      lightheadedness        and

dizziness for individuals suffering from NOH.                           The endpoint for

Study        301    was    set    forth   in     a    “special     protocol     assessment”

(SPA), which was an agreement between Chelsea and the FDA that

the study design, trial size, and clinical goals could support

regulatory approval.                 The SPA involving Study 301 also stated

that the FDA expected two successful efficacy studies before it

would grant regulatory approval of the new drug.

      The first study to conclude, Study 302, failed to meet its

primary endpoint.                 Later documents showed that the results of

Study 302 “clearly . . . dr[e]w the efficacy of [the drug] into

question,”          and     demonstrated       that     symptoms    worsened     for     those

individuals taking the drug.

      After         Chelsea       announced      to     investors      the    disappointing

results from Study 302, Chelsea petitioned the FDA to modify the

SPA’s endpoint for Study 301, which was ongoing.                                In November

2009, Chelsea representatives met with FDA officials, and later


        4
       Chelsea also conducted clinical trials to establish the
drug’s safety, but the results of those trials are not directly
relevant to our analysis in this appeal.


                                                 6
informed investors that the FDA had agreed to permit Chelsea to

use a different assessment scale for Study 301 than was used in

Study      302.       The      FDA    officials       also    had    recommended           at   the

November       2009       meeting      that       Chelsea     submit       “a     confirmatory

pivotal study to support” the new drug application, because of

the    failed       results     in    Study       302.       Based    on    this     additional

recommendation,            Chelsea      announced         plans      to    initiate        a     new

clinical trial, Study 306, which would involve an eight-week

treatment period.

       In September 2010, Chelsea announced that Study 301 had

concluded,         and    successfully        had      met   its     revised      endpoint        by

showing a statistically significant improvement in participants’

symptoms.          However, Study 301, which employed a treatment period

of    only    one    week,      was    the    sole       efficacy     study       conducted       by

Chelsea      that        met   its    primary         endpoint.           Study     303,       which

included significantly longer treatment periods than Studies 301

and 302, did not meet its endpoint, and failed to demonstrate

that the drug provided any “duration effect” on symptoms.                                      Study

306,       which     also      included       a    significantly           longer     treatment

period, was abandoned after an interim analysis indicated that

the study would not meet its endpoint. 5



       5
       Study 306 was later continued with a revised endpoint,
focusing on the prevention of falls in patients suffering from
(Continued)
                                                  7
       On December 10, 2010, Chelsea met with FDA officials to

assess the viability of submitting a new drug application based

on Study 301 (the December 2010 meeting).               During the December

2010 meeting, FDA officials again warned Chelsea that a single

successful    study    typically    was     not    sufficient    to   support

approval of a new drug.        Nevertheless, Chelsea announced that

the FDA had “agreed” that Chelsea’s new drug application for

Northera could be submitted based on data from Study 301, the

only study to meet its primary endpoint, and data from Study

302, which had not met its primary endpoint, without the need

for any further efficacy studies.

       During a conference call held with Chelsea investors, Dr.

Simon Pedder, Chelsea’s President and Chief Executive Officer,

described the December 2010 meeting as a “successful outcome”

that    “reflect[ed]   the   strength       of    the   data”   generated    by

Chelsea’s drug development program, and “mark[ed] a significant

step forward for Chelsea.”         Dr. Pedder also stated that the FDA

officials had clarified “that additional efficacy studies were

not required” for a new drug application filing.                 On the same

conference    call,    Dr.   William       Schwieterman,    Chelsea’s       Vice

President and Chief Medical Officer, represented that after the




Parkinson’s disease, but the results of the study would not be
available until 2012.


                                       8
December 2010 meeting, Chelsea was “very pleased” with the FDA’s

responses      to    Chelsea’s          questions    about      its     application    and

supporting data.           After these statements concerning the December

2010 meeting, Chelsea’s stock price rose about 28 percent.

      In September 2011, Chelsea announced that it had submitted

to    the   FDA     its     new    drug     application         based    on    purportedly

“robust” efficacy data from Studies 301 and 302.                              However, as

later   observed       by    the    FDA,    these       studies    involved      treatment

periods of only one week.

      In accordance with the FDA’s initial evaluation process for

new drug applications, an FDA staff member prepared a briefing

document in advance of the meeting of the FDA’s Cardiovascular

and   Renal    Drugs      Advisory       Committee       (the    advisory      committee),

which was held to review Chelsea’s application.                               The briefing

document      included       the    staff     member’s       recommendation        against

approval of Northera, which recommendation was based in part on

Chelsea’s failure to demonstrate that the drug had a “durable

effect (i.e., more than 4 weeks).”

      On February 13, 2012, eight days before the FDA briefing

document    was     made     available      to    the    public,      Chelsea    issued   a

press release.            In the release, Chelsea stated that it was in

“receipt of [the] briefing document,” and that “several lines of

inquiry . . . have emerged as significant components of the

benefit-risk        analysis       of    Northera,”      including       that    Chelsea’s

                                              9
drug development program “may not adequately establish a durable

treatment   effect       as    a    result    of    the    short     duration         of”    the

clinical trials.         Notably, however, Chelsea’s press release did

not disclose that the FDA briefing document concluded with the

recommendation        that    Northera       not   be     approved.        Also       in    that

release, Chelsea stated that the advisory committee would review

the   application       on    February      23,    2012.      Finally,          the    release

included a website address where the FDA briefing document later

would be made available.

      After the February 13, 2012 press release issued, Chelsea’s

stock   price     dropped      about       37.5    percent.         When    the       briefing

document became public eight days later on February 21, 2012,

Chelsea’s stock price dropped an additional 21 percent.

      On February 23, 2012, however, the FDA advisory committee

announced its non-binding recommendation in favor of approving

Northera    as    a    new    drug.         Several       members    of     the       advisory

committee      raised    the        same    concerns       outlined        in    the       staff

briefing document.            Although the advisory committee chairperson

voted in favor of approving the drug, he nevertheless stated,

“virtually all [members of the advisory committee] agree that”

the   failed     studies      “do    not    provide       confirmatory          evidence      of

benefit.       And the primary study, [Study] 301[,] also did not

provide evidence regarding the duration of effect in any direct

way.”

                                             10
     On March 28, 2012, the FDA denied the new drug application.

The FDA provided its decision in a “complete response letter,”

stating, among other things, that the FDA required an additional

successful study to support “durability of effect.”

     About     a     week    after   the        FDA’s     decision,     the    initial

complaint in this case was filed.                    The plaintiffs later filed a

consolidated class action complaint (the complaint), asserting

violations of Section 10(b) of the Exchange Act and SEC Rule

10b-5, 17 C.F.R. § 240.10b-5 (Rule 10b-5).                    In their complaint,

the plaintiffs, who purchased Chelsea stock between November 3,

2008 and March 28, 2012 (the class period), asserted numerous

claims including that the defendants misled investors to believe

that the FDA would approve Northera based on the results of only

one successful efficacy study, even though the FDA repeatedly

had warned Chelsea that two successful studies and evidence of

“duration of effect” would be necessary for approval of the new

drug.   In their complaint, the plaintiffs identified dozens of

allegedly    misleading      statements         or    material    omissions      by   the

defendants.

     In response, the defendants filed a motion to dismiss the

complaint    under    Rule    12(b)(6),         contending    that     the    complaint

failed to show that the defendants made any materially false

statements     or    omissions,      and    that        any   such    statements      or

omissions     were    not    made    with       the    required      scienter.        The

                                           11
defendants attached to their motion several exhibits and asked

the court to take judicial notice of them.

      The       exhibits       relevant          to    this     appeal    include      three

documents that were filed with the SEC (collectively, the SEC

documents).        Two of these documents are SEC “Form 4” reports,

filed by Dr. Schwieterman as the “Reporting Person,” showing

that while employed as a corporate officer he made two purchases

of Chelsea stock during the class period.

      The       third     document         submitted          by    the   defendants,      a

“Definitive Proxy Statement” that Chelsea filed with the SEC,

listed the amount of Chelsea stock shares held by the company’s

officers at the end of February 2012, near the end of the class

period.         The Proxy Statement showed that Dr. Pedder owned 2.8

percent of all shares of Chelsea stock, while other officers

owned   lesser      amounts         of    Chelsea      stock.       However,     the   Proxy

Statement did not reflect whether any of these stock holdings

had been acquired or sold during the class period.

      At    a    hearing       on   the    motion      to     dismiss,    the    defendants

represented       that     none      of    the    Chelsea      officers    had    sold   any

shares of Chelsea stock during the class period.                          The defendants

argued that the absence of such sales undermined any inference

of   scienter      on    the    part      of     the   defendants.        The    plaintiffs

objected    to     the    court’s         consideration        of   the   SEC    documents,

asserting that the record did not show definitively “whether any

                                                 12
individual       purchased         stock       or     sold    stock     during       the     class

period” because there had not been any discovery in the case.

        At the conclusion of the hearing, the district court took

judicial       notice        of     the       SEC     documents,        and      granted         the

defendants’ motion to dismiss.                       Applying the heightened pleading

standards       of     the    Private          Securities          Litigation     Reform         Act

(PSLRA),       15    U.S.C.       § 78u-4(b)(2),           the      court    held     that       the

plaintiffs’          securities           fraud       claims        failed      because          the

plaintiffs did not plead allegations sufficient to support a

strong inference of scienter.

       The district court concluded that although the defendants’

statements to investors during the class period “may have been

overly optimistic about the [likelihood of the] FDA approving

Northera,”          those    statements           did     not      demonstrate        a     strong

inference      of     scienter          for    two      reasons.        First,       the     court

observed that the defendants provided many warnings to investors

regarding       the     sufficiency             of      the     new     drug     application.

Second,     the      court        found       that    when      weighing       the    competing

inferences regarding scienter, “the most glaring” inference was

“the    fact    that    none       of    the    individual         defendants        sold    stock

during the class period.”                     (Emphasis in original).                 The court

concluded that the lack of stock sales “tip[ped] the scales in

favor     of    defendant[s’]             motion”        to     dismiss,       rendering         the

plaintiffs’         allegations         insufficient          as    a   matter       of    law    to

                                                 13
establish     the    required       inference      of    scienter.        After     the

district    court    entered       its    order     dismissing      the    case    with

prejudice, the plaintiffs filed this timely appeal.



                                           II.

     In addressing the plaintiffs’ arguments, we first state the

applicable standard of review.              We consider de novo the district

court’s    dismissal    of    the    plaintiffs’        complaint    under       Federal

Rule of Civil Procedure 12(b)(6).                Wag More Dogs, LLC v. Cozart,

680 F.3d 359, 364 (4th Cir. 2012).

                                           A.

     The plaintiffs first argue that the district court erred by

considering the SEC documents submitted by the defendants that

were not integral to the complaint, and by concluding based on

those   documents     that    none    of    the    individual    defendants        sold

Chelsea    stock    during     the    class       period.     According       to    the

plaintiffs,    the     district      court’s       improper   consideration         and

incorrect interpretation of these documents contributed to the

court’s erroneous conclusion that the defendants failed to plead

sufficient facts supporting a strong inference of scienter.

     In response, the defendants contend that the district court

properly    considered       the    SEC    documents      submitted       with    their

motion to dismiss.       Arguing that courts “routinely examine” SEC

filings at the pleading stage of securities fraud litigation,

                                           14
the defendants assert that the district court did not err in

taking    judicial         notice     of       the    contents     of    the     two    Form   4

exhibits and the Proxy Statement exhibit.                          The defendants submit

that   these    documents          supported          the    district    court’s       findings

that the individual defendants failed to sell shares of Chelsea

stock,    and    did       not    knowingly          or     recklessly    make    misleading

statements.         We disagree with the defendants’ arguments.

                                                 1.

       As an initial matter, we set forth general legal principles

involving securities fraud claims that are pertinent to this

appeal.        We    also        review       principles       addressing      the     scienter

required for such claims.

       The Exchange Act and related regulations ensure that public

companies    release         information          that      will   permit   “investors         to

make informed investment decisions.”                           Yates v. Mun. Mortg. &

Equity, LLC, 744 F.3d 874, 884 (4th Cir. 2014) (citing Taylor v.

First Union Corp. of S.C., 857 F.2d 240, 246 (4th Cir. 1988)).

Under Section 10(b) of the Act, companies are prohibited from

using “any manipulative or deceptive device or contrivance” in

connection      with       the    sale     of    a    security     in    violation      of   SEC

rules.       See      15    U.S.C.        §     78j(b).        Pursuant     to    regulatory

proscription in Rule 10b-5, the following conduct is unlawful in

connection with the sale of a security:



                                                 15
        To make any untrue statement of a material fact or to
        omit to state a material fact necessary in order to
        make the statements made, in the light of the
        circumstances   under  which  they  were   made,  not
        misleading . . . .

17 C.F.R. § 240.10b-5(b).

      Generally,        a    plaintiff             asserting      a    claim      under   Section

10(b)    must     establish:            “(1)       a     material      misrepresentation        or

omission     by       the   defendant;             (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.”                                      Yates,

744 F.3d at 884 (citation omitted); see Matrixx Initiatives,

Inc. v. Siracusano, 131 S. Ct. 1309, 1322 (2011).                                     Because the

district court dismissed the plaintiffs’ complaint solely based

on the sufficiency of the allegations of scienter, our review is

limited to that one element of the plaintiffs’ claims.

      To demonstrate scienter, a plaintiff must show that the

defendant       acted       with        “a       mental    state       embracing       intent   to

deceive,    manipulate,            or    defraud.”             Tellabs,     551    U.S.   at    319

(citation omitted).            Allegations of reckless conduct can satisfy

the level of scienter necessary to survive a motion to dismiss.

See     Matrix    Capital,          576          F.3d     at    181.       Reckless       conduct

sufficient       to     establish            a    strong       inference    of     scienter     is

described as “severe,” Ottman v. Hanger Orthopedic Grp., Inc.,

353 F.3d 338, 344 (4th Cir. 2003), or conduct that is “so highly

                                                    16
unreasonable and such an extreme departure from the standard of

ordinary care as to present a danger of misleading the plaintiff

to the extent that the danger was either known to the defendant

or so obvious that the defendant must have been aware of it.”

Matrix Capital, 576 F.3d at 181 (citation and internal quotation

marks omitted).

      Claims   of     securities     fraud       are    subject      to   a   heightened

pleading standard under the PSLRA.                      Yates, 744 F.3d at 885.

Under this heightened pleading standard, the allegations of a

securities     fraud    claim     must    “state        with   particularity       facts

giving rise to a strong inference that the defendant acted with

the   required      state    of    mind”        regarding      the    acts    allegedly

violating     the   Exchange      Act.      15     U.S.C.      §   78u-4(b)(2).        To

evaluate the strength of scienter inferences, courts engage in a

comparative analysis.         Yates, 744 F.3d at 885; see Tellabs, 551

U.S. at 326-27.        “[A]n inference of scienter can only be strong

. . . when it is weighed against the opposing inferences that

may be drawn from the facts in their entirety.”                       Yates, 744 F.3d

at 885 (quoting Cozzarelli v. Inspire Pharms. Inc., 549 F.3d

618, 624 (4th Cir. 2008)).

      After    comparing     the    “malicious          and    innocent       inferences

cognizable     from    the   facts       pled,”     a    complaint        will   not   be

dismissed so long as “the malicious inference is at least as

compelling as any opposing innocent inference.”                           Id. (quoting

                                           17
Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 991 (9th

Cir. 2009)).          In evaluating these inferences, we consider the

scienter allegations holistically and accord those allegations

“the inferential weight warranted by context and common sense.”

Matrix Capital, 576 F.3d at 183 (citing Cozzarelli, 549 F.3d at

625-26).

                                                2.

       In    view     of    these       principles,       we   turn      to   address     the

plaintiffs’ claims that the district court erred in its scienter

analysis      by     considering        the     SEC     documents     submitted     by   the

defendants that were not integral to the complaint.                              Generally,

when    a    defendant      moves        to    dismiss     a   complaint        under    Rule

12(b)(6), courts are limited to considering the sufficiency of

allegations         set    forth     in       the    complaint     and    the    “documents

attached or incorporated into the complaint.”                             E.I. du Pont de

Nemours & Co. v. Kolon Indus., Inc., 637 F.3d 435, 448 (4th Cir.

2011); see Clatterbuck v. City of Charlottesville, 708 F.3d 549,

557 (4th Cir. 2013).           Consideration of extrinsic documents by a

court       during    the    pleading           stage     of   litigation       improperly

converts      the     motion       to    dismiss       into    a   motion     for   summary

judgment.      E.I. du Pont de Nemours & Co., 637 F.3d at 448.                           This

conversion is not appropriate when the parties have not had an

opportunity to conduct reasonable discovery.                             Id.; see Fed. R.

Civ. P. 12(b), 12(d), and 56.

                                                18
       Courts    therefore       should    focus     their    inquiry      on     the

sufficiency of the facts relied upon by the plaintiffs in the

complaint.      Am. Chiropractic Ass’n v. Trigon Healthcare, Inc.,

367 F.3d 212, 234 (4th Cir. 2004).               Consideration of a document

attached to a motion to dismiss ordinarily is permitted only

when the document is “integral to and explicitly relied on in

the complaint,” and when “the plaintiffs do not challenge [the

document’s] authenticity.”             Id. (quoting Phillips v. LCI Int’l

Inc., 190 F.3d 609, 618 (4th Cir. 1999)); see Cozzarelli, 549

F.3d at 625 (considering investment analyst reports attached to

the defendants’ motion to dismiss because the complaint quoted

from   those    reports    and   the    plaintiffs    did    not   challenge      the

reports’ authenticity).

       We have recognized a narrow exception to this standard,

under which courts are permitted to consider facts and documents

subject   to    judicial    notice     without     converting      the   motion    to

dismiss into one for summary judgment.               Clatterbuck, 708 F.3d at

557.    Under Federal Rule of Evidence 201, courts at any stage of

a proceeding may “judicially notice a fact that is not subject

to reasonable dispute,” provided that the fact is “generally

known within the court’s territorial jurisdiction” or “can be

accurately and readily determined from sources whose accuracy

cannot reasonably be questioned.”                Nevertheless, when a court

considers relevant facts from the public record at the pleading

                                          19
stage, the court must construe such facts in the light most

favorable to the plaintiffs.                    Id.     Moreover, the determination

whether      a    fact       properly     is    considered       under    this     exception

depends on the manner in which a court uses this information.

Id.   (holding          that     the    district       court     improperly       considered

contents     of     a    public        record    as    an     established    fact       and    as

evidence contradicting the complaint).                         With these principles in

mind,   we       turn    to     consider       the    district    court’s        use    of    the

challenged SEC documents.

      The plaintiffs’ complaint stated in general terms that, in

investigating           the    case,    plaintiffs’         counsel   had    reviewed         the

public filings submitted to the SEC.                        However, the complaint did

not otherwise refer to any SEC filings, or the contents of such

filings, to support the plaintiffs’ allegations.                             In fact, the

complaint did not contain any allegation suggesting that the

individual defendants made any sales or purchases of Chelsea

stock during the class period.

      Although          plaintiffs        asserting         securities      fraud        claims

frequently bolster allegations regarding scienter by asserting

unusual    sales        of     stock    by     individuals      accused     of    committing

securities fraud, the plaintiffs in the present case did not

include this type of allegation in their complaint.                                    And such

allegations        of         unusual    stock        sales     are   not    required         to

demonstrate a strong inference of scienter in a securities fraud

                                                20
case.   See Mizzaro v. Home Depot, Inc., 544 F.3d 1230, 1253 n.3

(11th Cir. 2008) (“[S]uspicious stock sales are not necessary to

create a strong inference of scienter.”) (citing Tellabs, 551

U.S. at 325).         Therefore, because the SEC documents were not

explicitly     referenced      in,    or      an   integral       part    of,    the

plaintiffs’     complaint,     the    district      court     should      not    have

considered those documents in reviewing the sufficiency of the

plaintiffs’ allegations.

     Our conclusion is not altered by the defendants’ contention

that the district court was entitled to take judicial notice of

the contents of the SEC documents because the accuracy of those

documents    cannot    reasonably     be     questioned.      Even   if    the   SEC

documents     and   their    contents      could    have    been     reviewed     in

accordance with Rule 201, the district court in the present case

incorrectly     construed    the     information     contained       in    the   SEC

documents.

     Instead of considering the information in the light most

favorable to the plaintiffs, the court found that the documents

established the “fact that none of the individual defendants”

sold Chelsea stock during the class period.                   Notably, however,

the referenced SEC documents fail to establish any such fact.

     The Form 4 documents merely indicate that a single Chelsea

corporate     officer,   Dr.    Schwieterman,       made    two    purchases      of

Chelsea stock during the class period, while the Proxy Statement

                                        21
shows that each corporate officer held some shares of Chelsea

stock at a certain point near the end of the class period.                        The

record does not reflect for comparative purposes how many shares

of stock the individual defendants held at the beginning of the

class period, or provide any other basis for determining whether

corporate officers other than Dr. Schwieterman purchased or sold

any of their Chelsea stock during that period.

      Instead, the Form 4 documents list only Dr. Schwieterman as

the “Reporting Person,” and do not contain any reference to any

other corporate officer.              And the Proxy statement provides only

a   “snapshot    in     time”    of    stock   shares   owned      by   the   various

Chelsea officers as of February 29, 2012.                  Therefore, regardless

whether the information contained in the SEC documents could be

considered under the judicial notice provisions of Rule 201,

such information did not provide a factual basis for the court’s

conclusion      that    no     individual      defendant    sold    Chelsea     stock

during the class period.          See Clatterbuck, 708 F.3d at 557-58.

      We also disagree with the defendants’ argument that even if

the   district         court    erred     in     this   regard,         the   court’s

consideration of the SEC documents did not affect the outcome of

the court’s decision concerning the adequacy of the plaintiffs’

allegations.      In weighing the competing inferences, the district

court concluded that the defendants’ purported failure to sell

Chelsea stock during the class period “tip[ped] the scales” of

                                          22
the competing inferences of scienter.                         In fact, the district

court cited only one other competing inference when considering

the element of scienter, namely, that the defendants informed

investors      regarding      certain       weaknesses          of     Chelsea’s        drug

development program.          Therefore, the district court’s comparison

of inferences undoubtedly was affected by its error relating to

the content of the SEC documents.                 Accordingly, we conclude that

the court’s consideration of the challenged SEC documents was

not harmless.

                                            B.

       The   plaintiffs      argue    that       in    addition      to    the   district

court’s error in relying on the challenged SEC documents, the

court   further      erred   in   concluding           that    their      allegations     of

scienter were insufficient as a matter of law.                              In asserting

that    they    pleaded      facts    permitting         a     strong      inference     of

scienter,      the   plaintiffs      rely    on       their    allegations       that   the

defendants intentionally or recklessly failed to disclose that

the    FDA   expected     Chelsea     to    produce       two    successful       studies

showing evidence of durability of effect.                       The plaintiffs place

particular      emphasis     on   their     allegation          that    the   defendants

intentionally misled investors in the February 13, 2012 press

release, by failing to disclose that the FDA briefing document

included a recommendation against approval of Northera.                                 The

plaintiffs assert that because the defendants were aware of this

                                            23
adverse recommendation but withheld it, such conduct supports a

strong inference of wrongful intent.

      In response, the defendants maintain that the plaintiffs

failed to allege sufficient facts to support a strong inference

of scienter.       The defendants submit that because they disclosed

to investors various weaknesses of their new drug application,

the defendants’ omission of other information does not support a

strong inference of scienter.                With respect to the February 13,

2012 press release, the defendants argue that their omission of

the   adverse      FDA       staff    recommendation        does    not   demonstrate

wrongful intent, because the press release included a website

address where investors eight days later could locate the full

FDA   briefing     document.            We    disagree      with    the   defendants’

position.

      As   the    Supreme      Court    emphasized     in     Matrixx     Initiatives,

“companies       can     control      what    they    have     to    disclose   under

[Section 10(b) and Rule 10b-5(b)] by controlling what they say

to the market.”          131 S. Ct. at 1322.               Thus, while Chelsea and

its   corporate         officers       may    have     lacked       an    independent,

affirmative       duty        to      disclose       the     adverse      FDA    staff

recommendation         and    the    shortcomings     of    Chelsea’s     evidence   of

efficacy, the defendants’ failure to do so must be viewed under

Section 10(b) and Rule 10b-5(b) in the context of the statements

that they affirmatively elected to make.                   See id.

                                             24
        Based    on    our        de    novo        review,       we     conclude          that    the

plaintiffs’      complaint,            when    viewed       in     its    entirety,         contains

sufficient       allegations           giving       rise     to    a    strong     inference        of

scienter.        This       strong      inference          of     intentional         or    reckless

conduct     is    supported            by     the     plaintiffs’          allegations            that

material, non-public information known to the defendants about

the status of the new drug application and required efficacy

studies    conflicted         with      the     defendants’            public    statements         on

those subjects.

      According        to    the       plaintiffs’           allegations,         although         the

defendants knew that the FDA expected two successful efficacy

studies demonstrating durability of effect to support regulatory

approval    of    Northera,            none    of     the    defendants’         statements         to

investors       addressed         this        critical       expectation.              After       the

defendants met with FDA officials in December 2010 to discuss

submission of the new drug application based only on Study 301,

the   defendants        instead         informed       investors          that     the      FDA    had

“agreed” that Chelsea could submit its new drug application for

Northera “without the need for any further efficacy studies.”

However,        even        assuming          that      this           statement       truthfully

represented       an     FDA       communication             that       Chelsea’s          new    drug

application      could       be    submitted,          the      statement       was    misleading

given     the    FDA’s       continuing         expectation            that     two    successful

efficacy studies would be required for approval of Northera.

                                                 25
      The defendants also were aware by December 2010 that the

lone successful efficacy trial, Study 301, involved a treatment

period of only one week, in contrast to the failed Study 303 and

the     abandoned     Study        306,    which       both    involved     much   longer

treatment periods.           Nonetheless, the defendants described their

December 2010 meeting with the FDA as a “successful outcome”

reflecting      the    “strength          of   the     data”    gathered     during   the

clinical trials.

      The issue of durability of effect is a core component of

the plaintiffs’ allegations, along with the FDA’s expectation of

two successful studies.              Critically, the plaintiffs alleged that

Chelsea knew that the FDA expected evidence of durability of

effect, not just evidence of efficacy, and that “Chelsea was

aware     of    Study        301     and       Study     302’s       durational-benefit

shortcomings.”        JA 65 ¶ 106.

      Although the FDA can approve a new drug based on results of

only one successful study, the study must be “adequate” and the

data must present “substantial evidence that the drug will have

the effect it purports.”              See 21 U.S.C. § 355(d).               Additionally,

the plaintiffs did not allege that Chelsea unreasonably sought

review by the FDA on the basis of one successful study.                               The

plaintiffs instead alleged that the defendants misled investors

regarding      the    risk    of     submitting         the    new   drug    application



                                               26
supported     only      by   a    single,         one-week         study     providing     scant

evidence of durability of effect.

      The     plaintiffs          also        made          a     significant       allegation

concerning the defendants’ failure to disclose in the February

13, 2012 press release that the FDA briefing document contained

a recommendation against approval of Northera.                                  In its press

release, Chelsea instead stated that Chelsea had received the

briefing document and disclosed that “several lines of inquiry”

had   emerged,       including         that       the       efficacy       trials   “may     not

adequately establish a durable treatment effect.” 6                                  Chelsea’s

omission    of    the    information             regarding        the   adverse     FDA    staff

recommendation, when viewed in the context of the known problems

of the efficacy studies and Chelsea’s earlier remarks regarding

those studies, supports the inference that Chelsea intentionally

or recklessly misled investors.

      These      allegations          are     significantly             stronger    than     the

allegations we considered in Cozzarelli, a case on which the

defendants       rely.           In    Cozzarelli,              which    also     involved      a

pharmaceutical       company’s         attempt         to       gain   FDA   approval     for   a

drug, the plaintiffs’ primary allegation of scienter focused on

a   corporate     officer’s       use       of    an    imprecise        medical    term    when

      6
       Contrary to the dissent’s assertion, the change in Chelsea
stock prices after Chelsea’s statements is relevant to the
element of materiality, and does not impact our consideration of
the allegations of scienter.


                                                 27
describing the endpoint of a clinical study, allegedly with the

intent to mislead investors to think that the study was likely

to succeed.      549 F.3d at 624-26.      We concluded that not only was

the general term used by the corporate officer “more or less

interchangeable” with the precise term not referenced, but that

the pharmaceutical company also informed investors that it would

not disclose the details of the study for “competitive reasons.”

Id. at 626.        Therefore, we concluded in Cozzarelli that the

corporate officer’s chosen language did not support a strong

inference of scienter. 7      Id. at 627-28.

     In contrast, the present case involves numerous allegedly

misleading statements and omissions by the defendants that were

not caused by the use of imprecise language or the execution of

a   legitimate     business   decision.       Instead,     the   plaintiffs’

allegations,     when   considered   in    the   context    of   the   entire

complaint, permit a strong inference that the defendants either

     7
        After concluding that the plaintiffs’ allegations in
Cozzarelli failed to show scienter based on the allegedly
intentional false statement by a corporate officer, we proceeded
to consider the plaintiffs’ other allegations of scienter, which
involved the company’s financial motivations and the sales of
stock by corporate officers.     549 F.3d at 628.   We concluded
that   even  considering   these   additional  allegations,  the
plaintiffs’ complaint failed to demonstrate a strong inference
of scienter.    Id.   Here, however, because the nature of the
alleged misstatements and omissions themselves give rise to a
strong inference of scienter, we need not consider the
plaintiffs’ additional allegations regarding the defendants’
financial motivations.



                                     28
knowingly or recklessly misled investors by failing to disclose

critical information received from the FDA during the new drug

application process, while releasing less damaging information

that they knew was incomplete. 8

        We emphasize that our conclusion does not stand for the

proposition that a strong inference of scienter can arise merely

based       on   a   defendant’s    failure    to   disclose   information.

Rather, the scienter inquiry necessarily involves consideration

of the facts and of the nature of the alleged omissions or

misleading statements within the context of the statements that

a defendant affirmatively made. 9          See Matrixx Initiatives, 131 S.

Ct. at 1322 (stating that “companies can control what they have


        8
       The dissenting opinion states that Dr. Pedder acknowledged
one of the obstacles to drug approval by stating, after the
December 2010 meeting, that the FDA was interested “in seeing
‘two additional studies.’”   However, Dr. Pedder’s statement did
not acknowledge that the FDA expected to see two successful
studies showing durability of effect. Rather, Dr. Pedder stated
that the FDA “was clear that additional efficacy studies were
not required for an NDA filing,” but that the FDA was interested
in two specific types of studies unrelated to durability of
effect.    Additionally, the dissent appears to rely on the
defendants’ statements made on March 28, 2012, after the FDA
denied the new drug application. The defendants’ statements at
that point, however, are not relevant to the plaintiffs’
allegations of scienter.
        9
       As observed in the           dissenting opinion, this Court many
times has concluded that a          plaintiff asserting securities fraud
claims failed to plead             allegations demonstrating a strong
inference   of  scienter.             Such   conclusions,  however,  are
necessarily fact-dependent          and do not compel a result in the
present case.


                                      29
to     disclose       under     [Section 10(b)           and     Rule     10b-5(b)]         by

controlling what they say to the market”).

       The inference of scienter here is at least as compelling as

the opposing inference that Chelsea officials had signaled to

investors     that     there    were    some      weaknesses      in    their       new   drug

application regarding efficacy studies for Northera, and simply

failed to provide further details regarding information received

from    the   FDA.      See     Yates,   552      F.3d     at    891.        We   therefore

conclude      that    the     plaintiffs’      allegations        are     sufficient       to

support the required inference of scienter.                             Our conclusion,

however,      is     limited     to    the     sufficiency        of      the     complaint

regarding     the     element    of    scienter,      and      does    not    address      the

sufficiency of the allegations with respect to the remaining

elements of the plaintiffs’ securities fraud claims, which will

be considered by the district court in the first instance on

remand. 10



                                         III.

       For these reasons, we hold that the district court erred in

dismissing      the    plaintiffs’       complaint        on    the     basis     that     the

allegations        supporting    an    inference      of       scienter      were    legally



       10
        We do not address the plaintiffs’ derivative                                 Section
20(a) claims, which also should be considered on remand.


                                             30
insufficient.    Accordingly,   we   vacate   the   district   court’s

judgment and remand the case for further proceedings.


                                                VACATED AND REMANDED




                                31
THACKER, Circuit Judge, dissenting:

             Since the enactment of the PSLRA, we have published

eight decisions reviewing the dismissal of a securities fraud

suit for failure to plead facts supporting a strong inference of

scienter; in all of them, we concluded that the inference was

lacking.     See Yates v. Mun. Mortg. & Equity, LLC, 744 F.3d 874,

894   (4th    Cir.   2014);    Matrix      Capital     Mgmt.   Fund,    LP     v.

BearingPoint,    Inc.,   576   F.3d   172,   176     (4th   Cir.   2009);    Pub.

Emps.’ Ret. Ass’n of Colo. v. Deloitte & Touche LLP, 551 F.3d

305, 306 (4th Cir. 2009); Cozzarelli v. Inspire Pharm. Inc., 549

F.3d 618, 628 (4th Cir. 2008); Teachers’ Ret. Sys. of La. v.

Hunter, 477 F.3d 162, 184 (4th Cir. 2007); In re PEC Solutions,

Inc. Sec. Litig., 418 F.3d 379, 388-90 (4th Cir. 2005); Ottmann

v. Hanger Orthopedic Grp., Inc., 353 F.3d 338, 352-53 (4th Cir.

2003); Phillips v. LCI Int’l, Inc., 190 F.3d 609, 620 (4th Cir.

1999).   In my view, the inference is lacking in this case, too.

             The PSLRA requires a plaintiff in a securities fraud

suit to “state with particularity facts giving rise to a strong

inference that the defendant acted with the required state of

mind.”     15 U.S.C. § 78u-4(b)(2)(A).          To establish this strong

inference, a plaintiff must persuade the court that it is as

likely as not that the defendant acted with fraudulent intent

or, at the very least, with “such severe recklessness that the

danger of misleading investors was either known to the defendant

                                      32
or so obvious that the defendant must have been aware of it.”

Cozzarelli v. Inspire Pharm. Inc., 549 F.3d 618, 623 (4th Cir.

2008) (internal quotation marks omitted).                        Here, the allegations

do    not     strongly     imply         either      fraudulent       intent       or    severe

recklessness.          Instead, the allegations suggest that Chelsea --

while        acknowledging         the     various         challenges        and        setbacks

encumbering its bid for FDA approval -- submitted the Northera

application       with     justifiable         confidence        in    its     chances         for

success.       I therefore respectfully dissent. 1

                                               I.

                                               A.

               Scienter,      as    defined         by    the   Supreme      Court,       is    “a

mental       state     embracing         intent      to     deceive,       manipulate,         or

defraud.”       Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 n.12

(1976).       The federal circuit courts agree that reckless behavior

may     be    enough     to    satisfy         the       scienter     requirement         in     a

securities       fraud    suit, 2        but   they       “differ     on   the     degree       of



      1
       I do not object to the majority’s determination that the
district court misused the challenged SEC documents.    However,
in my view, the court’s reliance on those documents is of no
consequence.      The  plaintiffs’   complaint   ought to   fail
regardless.
     2
       For its part, the Supreme Court has never stated whether
recklessness is enough to satisfy the section 10(b) scienter
requirement.   See Matrixx Initiatives, Inc. v. Siracusano, 131
S. Ct. 1309, 1323 (2011) (noting that the Court has “not decided
whether   recklessness   suffices   to   fulfill   the  scienter
(Continued)
recklessness required.”         Tellabs, Inc. v. Makor Issues & Rights,

Ltd., 551 U.S. 308, 319 n.3 (2007).                The distinctions among the

circuits     include     variations          in   terminology,       with     courts

“referring       to     the    recklessness         standard       variously      as

‘deliberate’ or ‘conscious recklessness,’ ‘severe recklessness,’

and ‘a high degree of recklessness.’”                    Ann Morales Olazábal,

Defining    Recklessness:      A     Doctrinal    Approach    to    Deterrence    of

Secondary Market Securities Fraud, 2010 Wis. L. Rev. 1415, 1424

(footnotes omitted) (collecting cases).

            In   this    circuit,      we    recognize    that     allegations   of

recklessness can satisfy the scienter requirement, see Matrix

Capital Mgmt. Fund, LP v. BearingPoint, Inc., 576 F.3d 172, 181

(4th Cir. 2009); see also Ottmann v. Hanger Orthopedic Grp.,

Inc., 353 F.3d 338, 344 (4th Cir. 2003) (recognizing for the

first time in this circuit that “a securities fraud plaintiff

may allege scienter by pleading not only intentional misconduct,

but also recklessness”), but we insist that the recklessness

must   be   “severe”    --    that    is,    “a   slightly    lesser   species    of

intentional misconduct.”             Ottmann, 353 F.3d at 344 (internal

quotation marks omitted); see also Cozzarelli, 549 F.3d at 623;

Teachers’ Ret. Sys. of La. v. Hunter, 477 F.3d 162, 184 (4th




requirement” and finding it unnecessary                  to   settle    the    issue
under the circumstances of the case).


                                            34
Cir. 2007).        This definition of recklessness, we have stated,

“comports with the observation of the Supreme Court that ‘[t]he

words    “manipulative          or     deceptive”       used     in     conjunction           with

“device     or    contrivance”            strongly      suggest        that     § 10(b)        was

intended     to    proscribe           knowing     or    intentional           misconduct.’”

Ottmann, 353 F.3d at 344 (alteration in original) (quoting Ernst

& Ernst, 425 U.S. at 197).

            Our decision in Cozzarelli v. Inspire Pharmaceuticals,

Inc. makes clear that pleading scienter -- whether in the form

of    fraudulent     intent          or   severe     recklessness         --       requires      a

showing of “wrongful intent.”                 549 F.3d at 621.            There, a group

of shareholders alleged that a drugmaker seeking FDA approval of

an    experimental     eye-disease           treatment         misled     investors           into

believing     that    an        important        clinical      trial      was       likely      to

succeed.     See id. at 624-25.               The drugmaker allegedly nurtured

this false impression by withholding details about the trial’s

endpoint while simultaneously representing that the trial was

“very   similar”     to     a    previous        successful      trial.            Id.   at    625

(internal    quotation          marks      omitted).        We    concluded          that      the

allegations       supported       an      inference     that     the    drugmaker        sought

only to protect its competitive advantage in the marketplace;

this inference, we stated, “is more powerful and compelling than

the   inference      that       [the      drugmaker]     acted     with       an    intent     to

deceive.”    Id. at 626 (emphasis supplied).

                                              35
              In        the     years      since      Cozzarelli,       our    court       has

occasionally neglected to note that the recklessness necessary

to support a finding of scienter must be “severe.”                                   Compare

Yates v. Mun. Mortg. & Equity, LLC, 744 F.3d 874, 884 (4th Cir.

2014) (“At the pleading stage, alleging either intentional or

severely reckless conduct is sufficient.” (emphasis supplied)),

with Matrix Capital, 576 F.3d at 181 (“Pleading recklessness is

sufficient         to     satisfy       the      scienter       requirement.”).            The

standard,      though,          remains     unchanged.          We   have     consistently

stated   that       an        allegedly     reckless      act    must    be    “so    highly

unreasonable and such an extreme departure from the standard of

ordinary care as to present a danger of misleading the plaintiff

to the extent that the danger was either known to the defendant

or so obvious that the defendant must have been aware of it.”

Matrix   Capital,             576   F.3d    at     181   (internal      quotation      marks

omitted); see also Pub. Emps.’ Ret. Ass’n of Colo. v. Deloitte &

Touche LLP, 551 F.3d 305, 314 (4th Cir. 2009) (“In order to

establish a strong inference of scienter, plaintiffs must do

more than merely demonstrate that defendants should or could

have done more.               They must demonstrate that [defendants] were

either knowingly complicit in the fraud, or so reckless in their

duties   as    to        be    oblivious      to      malfeasance    that     was    readily

apparent.”).             This       understanding        of     scienter      --    that    it

necessarily entails a “culpable state of mind,” Ottmann, 353

                                                 36
F.3d   at    348     --   preserves    section      10(b)       as   a     prohibition     on

securities      fraud.        It    ensures    that    corporations              and     their

officers cannot escape liability through willful blindness --

that   is,     purposeful      ignorance       of    the        truth      of    their     own

representations -- while, at the same time, it prevents section

10(b) from devolving into a penalty for business decisions that,

in hindsight, appear questionable.

                                          B.

              Here, under the PSLRA’s heightened pleading standard,

the plaintiffs were required to allege facts giving rise to a

strong inference of fraudulent intent or severe recklessness.

See 15 U.S.C. § 78u-4(b)(2)(A); Cozzarelli, 549 F.3d at 623.

This is “no small burden.”             Cozzarelli, 549 F.3d at 624.                    Though

the inference of scienter “need not be irrefutable,” it “must be

more than merely ‘reasonable’ or ‘permissible.’”                             Tellabs, 551

U.S.   at     324.        Unless   a   “reasonable      person           would    deem    the

inference      of     scienter . . . at        least       as     compelling       as      any

opposing inference” of nonfraudulent intent, the pleading fails.

Id.     The    plaintiffs’         complaint    here    does         not    satisfy      this

standard.

                                          1.

              Reviewing the complaint in its entirety, it is clear

that Chelsea had plenty of reason to believe the FDA would be



                                          37
receptive     to     its       application.             More    importantly,          the   facts

strongly suggest that Chelsea acted on just such a belief.

              To    merit      FDA     approval,         an    application       must      present

“substantial        evidence         that    the       drug    will    have     the   effect     it

purports or is represented to have under the conditions of use

prescribed, recommended, or suggested in the proposed labeling.”

21   U.S.C.    § 355(d).              Though       here       the    plaintiffs’      complaint

states that the FDA generally “requires at least two adequate

and well-controlled studies,” J.A. 59, 3 federal law expressly

authorizes the FDA to make the requisite finding of “substantial

evidence”     based       solely      on     “data      from    one        adequate   and      well-

controlled         clinical         investigation         and        confirmatory        evidence

(obtained     prior       to    or    after       such    investigation),”            21    U.S.C.

§ 355(d).          Likewise,          as    the    complaint          recognizes,        the    FDA

Guidelines         note        that        the     agency           “may     acknowledge        the

persuasiveness         of       a     single,       internally             consistent,      strong

multicenter study.”             J.A. 60.

              Chelsea based its FDA application on two sets of data.

First and foremost, there was the data from Study 301, which

successfully        demonstrated            the    drug’s      efficacy.         In   addition,

Chelsea offered supplemental data from Study 302, which, though

failing to meet its primary endpoint, showed what Chelsea later

      3
       Citations to the “J.A.” refer to the Joint Appendix filed
by the parties in this appeal.


                                                  38
determined          to     be     a     “nominally       statistically        significant

improvement” in the score used to measure the drug’s clinical

efficacy.          J.A. 42.           These were the data that the advisory

committee reviewed in February 2012, and the committee voted,

seven       to     four,     to       recommend    approving      the     drug.       The

chairperson, who was among those voting in favor of approval,

explained that there was “no question in [his] mind that this

drug       is    efficacious,         particularly   in    a   subset    of    patients.”

J.A. 203. 4        Other members echoed those remarks.                  One said he saw

“substantial evidence of substantial benefit for some patients.”

Id. at 205.          Another said he “could not in a clear conscience

vote no and deprive those patients from the benefits they can

derive at this point from this medication.”                     Id. at 67.

                 Nonetheless, the plaintiffs assert that Chelsea knew

the FDA expected two successful studies.                       This claim rests, in

large part, on a discussion that took place at the advisory

committee         meeting.        There,    one    FDA    administrator,       Dr.   Steve

Graham (“Graham”), recalled that the “very first thing we said”

in the special protocol assessment for Study 301 was “that the

study in and of itself wouldn’t be sufficient, that we wanted


       4
        The complaint quotes selectively from the advisory
committee meeting transcript.       Accordingly, although this
comment does not appear in the complaint, we may consider it
here because it is incorporated into the complaint by reference.
See Cozzarelli, 549 F.3d at 625.


                                              39
two studies.”         J.A. 61.          According to Graham, the FDA also “said

that we wanted durability,” a statement the agency “repeated on

at least two subsequent occasions on information letters to the

company.”           Id.     However,      at     that      very    same     meeting,   Graham

himself conceded that Study 301 alone, if successful, may be

sufficient to support the application.                        If, he said, that single

study presented “an overwhelming effect[,] . . . you’d be a fool

not to approve it.”           Id. at 62.

               In    its    December          20,    2010     press       release,     Chelsea

announced       that       the     FDA     had       “agreed”        that     the    proposed

application “could be submitted” based on Studies 301 and 302

“without the need for any further efficacy studies.”                                J.A. 233.

The plaintiffs’ complaint does not dispute the literal truth of

this    announcement.             Nor    is    there       any    reason     to   doubt     that

Chelsea interpreted the FDA’s feedback as highly encouraging.

The company’s actions are proof positive that it did.                                  Rather

than    wait    to    complete      Study       306,       Chelsea    pressed       ahead    and

submitted its application exactly as it said it would, with only

Study 301 and supplemental support from Study 302 to its credit.

Against this backdrop, the most compelling inference is not that

Chelsea acted with wrongful intent, but that it believed its

prospects      were       good.     See       Kuyat     v.    BioMimetic      Therapeutics,

Inc.,   747     F.3d      435,    441    (6th       Cir.     2014)   (concluding       that    a

medical-device manufacturer “could legitimately believe that the

                                                40
statistically         significant      results”         of    its     study     “would        be

sufficient     to     obtain    approval         by    the    FDA,”     despite          private

communications in which the FDA indicated that it expected a

more expansive study than the one provided).

                                            2.

             The plaintiffs’ claim that Chelsea’s public statements

were    intentionally        fraudulent      or       severely      reckless     runs       into

another      problem,       which    is   that        those    statements           were    not

unreservedly        optimistic.             On    the        contrary,        the        company

consistently acknowledged the obstacles in its path.

             In   a    December      2010     conference         call,    Chelsea’s         CEO

acknowledged that the FDA had expressed an interest in seeing

“two additional studies.”            J.A. 81.          Later, in its September 30,

2011 quarterly report to the SEC -- from which the plaintiffs’

complaint quotes -- the company listed numerous reasons why the

FDA “may not accept or approve” the Northera application.                                    Id.

at   141.      When     the    FDA    staff       issued      its    briefing        document

opposing     Chelsea’s        application,        the     company       issued       a     press

release noting its receipt of the document and explaining that

“several     lines     of     inquiry . . . have             emerged     as    significant

components of the benefit-risk analysis of Northera.”                                    Id. at

248 (internal quotation marks omitted).                       These issues, according

to the February 2012 press release, included “the short duration

of     our   clinical       studies,      the     limited        size    of     our        study

                                            41
population given the orphan indication and the challenges in

quantifying symptomatic and clinical benefit.”                              Id. (internal

quotation         marks    omitted).          Similarly,       when   the    FDA   rejected

Chelsea’s application in March 2012, the company explained in a

press release that it had received the FDA’s complete response

letter, and that this letter requested data from an “additional

positive study to support efficacy.” 5                     Id. at 68.         The company

continued to say that it planned to “request a meeting with the

FDA        to     review         the   Agency’s        comments,        clinical      trial

recommendations            and    to   help   determine    appropriate         next   steps

toward securing approval of Northera.”                    Id. at 69.

                 The market responded to these statements accordingly.

As    the       majority    notes,     Chelsea’s       stock    dropped     37.5   percent

following the February 2012 press release discussing the FDA

briefing         document.         Likewise,     the    stock    fell    28   percent    in

response to the March 2012 press release discussing the FDA’s

rejection         of   droxidopa.        These      reactions     call      into   question

whether Chelsea’s press releases were misleading at all -- let


       5
       The company issued this press release on March 28, 2012.
This date is significant both because it is the same day that
Chelsea received the FDA’s complete response letter and because
it marks the final day of the class period.          Despite the
majority’s claim to the contrary, see ante at 29 n.8, the
company’s statements on this date are indeed relevant to the
scienter   inquiry  because   they   undermine  the    plaintiffs’
assertion that Chelsea intentionally or recklessly failed to
disclose critical information during the class period.


                                               42
alone whether the danger of misleading people was “so obvious”

that making those statements must have been severely reckless.

Cozzarelli, 549 F.3d at 623 (internal quotation marks omitted).

                                      II.

              As we stated in Cozzarelli, we do not infer scienter

“from every bullish statement by a pharmaceutical company that

was trying to raise funds.”           549 F.3d 618, 627 (4th Cir. 2008).

If we did, “we would choke off the lifeblood of innovation in

medicine      by   fueling   frivolous      litigation.”     Id.      Today’s

decision clears the way for more litigation, heightening the

risk   that    shareholders    will   exploit    the   judicial    process   to

extract settlements from corporations they chose to fund.                This

is exactly what Congress sought to prevent when it enacted the

PSLRA.     See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551

U.S. 308, 320 (2007).         Accordingly, I would affirm the judgment

of the district court.




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