No. 23-1393

JULIAN QUINONES, individually and on behalf of all others similarly situated,

Plaintiff, Appellant,

PAUL EVANS, individually and on behalf of all others similarly situated; MICHAEL HINGSTON, individually and on behalf of all others similarly situated,

Plaintiffs,

v.

FREQUENCY THERAPEUTICS, INC.; DAVID L. LUCCHINO; CARL LEBEL,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS

[Hon. William G. Young, U.S. District Judge]

Before

Kayatta, Selya, and Howard, Circuit Judges.

Amanda F. Lawrence, with whom Thomas L. Laughlin, IV and Scott & Scott Attorneys at Law LLP were on brief, for appellant. Roman Martinez, with whom William J. Trach, Christine C. Smith, Jeff G. Hammel, Kevin M. McDonough, and Latham & Watkins LLP were on brief, for appellees. July 3, 2024 KAYATTA, Circuit Judge. Frequency Therapeutics is a biotechnology start-up that tried to develop a treatment called "FX-322" for individuals suffering from severe sensorineural hearing loss. While initial clinical trials of FX-322 were positive, subsequent testing produced disappointing results. When announced, those results triggered a sharp drop in the price of Frequency's publicly traded stock. That, in turn, led three stockholders to file this putative class action seeking recourse for alleged violations of sections 10(b) and 20(a) of the Securities and Exchange Act of 1934, 15 U.S.C. §§ 78t(a), 78j(b), and Securities and Exchange Commission Rule 10b-5.

Plaintiffs claim that Frequency's Chief Executive Officer, David Lucchino, and its Chief Development Officer, Carl LeBel, knew of problems with the study before the results were announced, yet gave investors assurances to the contrary. The district court dismissed the complaint for failing to allege sufficient facts to support a finding of scienter under the Private Securities Litigation Reform Act ("PSLRA") § 21D(b), 15 U.S.C. § 78u-4(b). We agree and affirm the dismissal.

I.

On a motion to dismiss, "we accept the factual allegations set forth" in the complaint, "as 'supplemented by certain materials the defendants filed in the district court in support of their motion to dismiss.'" Constr. Indus. & Laborers

- 3 - Joint Pension Tr. v. Carbonite, Inc., 22 F.4th 1, 4 (1st Cir. 2021) (quoting Mehta v. Ocular Therapeutix, Inc., 955 F.3d 194, 198 (1st Cir. 2020)). Initial trials of FX-322 indicated that the treatment was "likely safe and may have a beneficial effect on patients." So in October 2019, Frequency announced that it would be launching a Phase 2a trial of FX-322 with a wider study population. To guard against the possibility of bias in the Phase 2a trial, Frequency kept confidential certain participation eligibility requirements. It made a particular point of not disclosing how poorly a person would need to score on a word-recognition test to qualify for the study. The concern was that persons who knew the qualifying threshold might manipulate their results on the eligibility test to get into the study, and then -- when tested at the end -- show a marked "improvement" in hearing that was not actually a real change.

Frequency's concern was not farfetched. Some tinnitus patients apparently believed that FX-322 could help alleviate their condition. They were therefore eager to gain early access to the treatment through clinical trials even though they might not otherwise have